January FOMC: The window to cut is closing

Summary

• As was widely expected, the FOMC held the fed funds rate steady at its January meeting. The statement and Chair Powell's press conference suggested that the Committee is finely balanced between worries about a gradually deteriorating labor market and still above-target inflation. Our main takeaway from today's meeting is that the hurdle to additional cuts has been raised under Chair Powell's watch.
• Governors Miran and Waller dissented in favor of a 25 bps cut. Interestingly, Michelle Bowman voted in favor of holding rates unchanged, and Miran's dissent was for 25 bps, not 50 bps. Even the Committee's doves appear to have become relatively less dovish recently.
• January's hold follows 25 bps cuts at each of the FOMC's three previous meetings that have left the policy rate modestly above most participants' estimates of neutral (chart). The post-meeting statement struck us as slightly hawkish. References to downside risks to the labor market were removed, with new language saying that the unemployment rate has "shown some signs of stabilization."

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