Fed Will Wait To See 'The Whites Of 2% Inflation's Eyes' Before Cutting Rates: Economists Weigh In On Powell's Remarks

The Fed kept interest rates unchanged in its first meeting of 2024, but this widely expected decision was not the reason why Wall Street suffered its worst trading day in a month.

Rather, Fed Chair Jerome Powell pushed back against investor optimism for imminent rate cuts, with the money market assigning as many as six rate cuts in 2024 ahead of the meeting.

In his press briefing, Powell stated that rate cuts by March are “unlikely,” emphasizing the need for substantial confidence in inflation trending towards the Fed’s 2% target—a sentiment echoed in the Federal Open Market Committee’s (FOMC) policy statement.

Economists React To Fed Meeting, Powell’s Remarks

• Bill Adams, chief economist for Comerica Bank, states that “the Fed will wait to pull the trigger on rate cuts until they see the whites of 2% inflation's eyes.” He highlighted that while there’s evidence suggesting inflation is converging towards the target, the FOMC’s hesitancy also reflects concerns over too-buoyant financial market conditions potentially undermining the effectiveness of current policy rates.

• Charlie Ripley, senior investment strategist for Allianz Investment Management, sees the Fed on a tightrope, balancing between promising inflation trends and the need for further validation. “Despite promising inflation data pointing to a faster decline to the 2% target, the Fed has opted to move more carefully,” Ripley notes, adding that the economic resilience provides the Fed with the luxury of time to further assess inflation dynamics before committing to rate adjustments.

• Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, interprets Powell’s message as a reinforcement of the “higher for longer” policy stance. Zaccarelli emphasizes Powell’s focus on wanting “more data – and not necessarily different data” as an indication of the Fed’s cautious patience before altering its policy course. This approach signals a wait-and-watch strategy, prioritizing certainty over hastiness in policy adjustments.
  
• Alex McGrath, chief investment officer for NorthEnd Private Wealth, indicated that the market’s misread of the Fed’s intentions, stating, “The only thing that matters is the idea that a March rate cut is ‘unlikely.'” McGrath’s commentary underscores the market’s misplaced expectations and the consequential “rug pull” effect following Powell’s press conference, highlighting the disconnect between market speculation and the Fed’s policy trajectory.
  
• According to Quincy Krosbi, chief global strategist for LPL Financial, “Powell does little to cheer up a disappointed market.” Powell stopped short of providing the clarity the markets yearned for regarding a potential rate cut in March. However, Krosbi also stated that Powell acknowledged “that most likely there will be rate cuts this year,” indicating a shift might be on the horizon, contingent more on timing than on the possibility of rate adjustments.

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