Matthew Weller | Jan 30, 2025 02:29AM ET
The Federal Reserve’s FOMC left interest rates unchanged in the 4.25-4.50% range, as expected.
There were no changes to the Fed’s balance sheet strategy.
Beyond updating the current FOMC voting roster and updating for last month’s interest rate cut, there were several tweaks to the Fed’s monetary policy statement:
Source: StoneX
There are two potential interpretations of these changes: The more charitable, neutral reading is that the Fed is simply updating its statement to reflect the current reality that inflation has stopped falling for nearly a year now.
The other, more hawkish interpretation is that Jerome Powell and Company are sending a policy signal that the pause on interest rate cuts may be more prolonged than expected, perhaps through at least the first half of the year or longer.
Chairman Powell is still winding down his comments as we go to press, but with most of the press conference behind us, Powell has sought to guide markets toward the first interpretation. Despite his insistence though, traders have still reduced the perceived likelihood of an interest rate cut in March from ~25% earlier this week to closer to 20% now.
Highlights from Powell’s press conference follow [emphasis mine]:
The initial market reaction to the FOMC decision reflected the more “hawkish” interpretation of the statement’s assessment of inflation, with yields and the US dollar rising while stocks fell. However, as we go to press, those moves have reversed on the back of Powell’s emphasis that the tweaks were not meant to send a policy message, with the US dollar, yields, and US indices all essentially unchanged
Ultimately, the Fed is likely to be on hold for the next couple of months at a minimum, and narratives around tariffs and AI are the dominant theme for now, so the lack of a meaningful market reaction isn’t particularly surprising.
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