Here are the takeaways from today’s Morning Brief, which you can register to receive every morning in your mailbox accompanied by:
The Federal Reserve kept interest rates unchanged on Wednesday, keeping the federal funds rate at a 23-year high between 5.25% and 5.50%, due to a “lack of further progress” bringing the inflation to its target of 2%.
And while introducing a tougher assessment of inflation, Fed Chairman Jerome Powell left no doubt during a press conference about the Fed’s most likely next move.
“The next policy action is unlikely to be a hike,” Powell said at a news conference.
In response, stocks initially rallied and yields fell as Powell largely dismissed the market’s biggest fear. Stocks ended the day largely where they were before the Fed meeting, with investors realizing they already knew what Powell was telling them: Rate hikes are not being seriously considered by the Fed.
Elsewhere during his news conference, Powell outlined various potential scenarios that could warrant rate cuts, including inflation moving more convincingly closer to his 2% target and an unexpected weakening of the labor market. Powell’s discussion of what might trigger a rate hike was less robust.
Asked by Yahoo Finance’s Jennifer Schonberger whether, for example, a rise in the unemployment rate above 4% would constitute an unexpected slowdown, Powell said that “a few tenths [of a percentage point] of the unemployment rate probably wouldn’t do that.”
In March, the unemployment rate stood at 3.8%. Economists expect the unemployment rate to remain unchanged in April.
Consider this another signal that the bar is high for the Fed to rethink its claim that interest rates have peaked for this business cycle. A standard that is clearly much stricter than a few months of inflation data that, in Powell’s own words, has been “higher than expected” so far this year.
Heading into Wednesday’s meeting, investors’ expectations for how many times the Fed would cut rates in 2024 were gradually revised downward.
As Yahoo Finance’s Josh Schafer noted Wednesday, at the start of the year, nearly seven 0.25% rate cuts were planned; By Wednesday, that number had been reduced to just one.
As Neil Dutta of Renaissance Macro wrote: “Powell believes the policy is restrictive. If policy is restrictive, they are more concerned about the risks of lower growth than the risks of rising inflation. »
High interest rates create difficulties for borrowers and, like inflation, place a greater burden on households with fewer financial resources. But for investors, the question has long been no longer about the level of rates but about the direction of future changes.
Prices are high today. But confidence that rates will…
