SPUU - The Fed Holds Firm While The Market Hopes For Interest Rate Cuts

2024-01-31 16:15:05 ET

Summary

• The Federal Reserve removed any language indicating future rate hikes and upgraded the status of the economy in today's statement.
• The market is pricing in more rate cuts than what the outlook provides, with projections of 125 to 150 basis points of rate cuts by the end of the year.
• The current state of the economy justifies interest rates remaining at current levels.

Earlier today, the Federal Reserve surprised nobody by announcing no change in the Fed Funds interest rate . What did seem to be surprising was the change in language to the Fed’s statement. The Fed removed any language indicating future policy firming, or rate hikes. Additionally, the statement upgraded the status of the economy. While many were hoping for a March rate cut, the Fed seems to be dashing those hopes by stating “The committee does not expect it will be appropriate to reduce the target range until it has gained confidence that inflation is moving sustainably towards 2 percent.” Based on the nature of the statement, I believe the market is pricing more rate cuts than what the outlook provides....

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