FOMC removes “bias” to tighten, but don't expect imminent easing

Summary

• As universally expected, the voting members of the FOMC decided unanimously at their meeting today to make no changes to the Fed's policy stance, keeping the fed funds target range at 5.25-5.50% and maintaining the current pace of quantitative tightening.

• The FOMC also removed its implicit "bias" to tighten further. That is, the Committee dropped its reference toward "any additional policy firming that may be appropriate..."

• But we are not convinced the conditions will yet be in place to induce the FOMC to cut rates as soon as its March 20 meeting. The statement indicated that "the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

• A rate cut in March is not out of the question, but it would likely take another small increase in core PCE prices in January, in conjunction with soft data on economic activity, to compel the Committee to move in March.

• We look for the FOMC to cut rates by 25 bps at its meeting on May 1 and then another 100 bps by the end of 2024.

FOMC removes "bias" to tighten further

As universally expected, the voting members of the Federal Open Market Committee (FOMC) decided unanimously at their meeting today to make no changes to the Fed's policy stance. After hiking rates by 525 bps between March 2022 and July 2023, the Committee has subsequently maintained its target range for the federal funds rate at 5.25%–5.50%.

In an important development, the Committee removed its implicit "bias" to tighten policy further in its post-meeting statement. That is, the statements that were released last autumn noted that the Committee would take into account a range of information when "determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time." This sentence was tweaked in December to state "in determining the extent of any (emphasis ours) additional policy firming that may be appropriate..." Today's statement noted that "the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks" when "considering any adjustment to the target range for the federal funds rate." Until today, the FOMC statement was signaling that it was more likely that rates would need to rise further in the near term than to decline. The language in today's statement signals a more balanced approach towards the next move for the fed funds rate. In the post-meeting press conference, however, Powell stated that "we believe that our policy rate is likely at its peak for this tightening cycle."

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