Fed leaves rates unchanged for the fourth time in a row

The Federal Reserve (Fed) of the United States left interest rates last Wednesday, January 31 no changes in the range of 5.25% and 5.50%but took an important step to reduce them in the coming months in a message that mitigated concerns about inflation and eliminated a long-standing reference to possible new increases in borrowing costs, according to the Reuters report.

The central bank’s monetary policy statement gave no indication that a rate cut was imminent and, in fact, said the Federal Open Market Committee (FOMC) “does not expect it to be appropriate to reduce the target range until it has gained greater confidence that inflation is stabilizing, moving sustainably toward 2%,” its inflation goal.

“Inflation has decreased over the past year, but remains high,” the Fed mentioned in the statement after a two-day meeting. In addition, he reaffirmed that officials “remain very attentive to inflation risks.”

This reference could deal a blow to investors who were expecting rate cuts to begin in March.

But the Fed also nodded to concerns about the jobs aspect of its mission and opened the door to reducing the policy rate if inflation, as expected, continues to decline in the coming months.

The risks to meeting both employment and inflation objectives “are moving toward a better balance,” the Fed said. Likewise, ended roughly two years in which the central bank’s trend has been to raise rates and consider that risks are taken into account in view of price escalation.

“In considering any adjustment to the target range for the federal funds rate, the committee will carefully evaluate incoming data, the evolving outlook, and the balance of risks,” the FOMC detailed.

The Fed’s previous statement, on Dec. 13, had set out the conditions under which it would consider “any further tightening of policy,” language that excluded any consideration of rate cuts.

No gesture for investors

The latest statement, which left the Fed’s overnight benchmark rate in the range of 5.25% to 5.50%, was approved unanimously. Fed Chairman Jerome Powell will hold a press conference at 19:30 GMT to provide more details on the monetary policy decision and economic outlook.

While this stopped short of guiding investors and the public on the timing and pace of upcoming rate cuts, it did mark the current policy cut as the peak of an aggressive monetary tightening cycle that began in March 2022, when Price pressures were increasing.

Inflation hit a 40-year high several months later. This has now been below the Fed’s target on a seven-month basis, while economic growth in USA and the labor market have remained practically intact.

Economic activity “has been expanding at a solid pace,” the Fed said. Job creation “remains strong and the unemployment rate has remained low.”

With information from Reuters