Federal Reserve kept interest rates unchanged for the fourth consecutive time

(CNN) — The Federal Reserve (Fed) kept interest rates steady for the fourth consecutive meeting on Wednesday, keeping its benchmark interest rate at a 23-year high, as Wall Street anxiously awaits a rate cut at some point this year.

The US central bank has raised rates 11 times through March 2022 to tackle the highest inflation in decades. Price growth has slowed substantially since then, approaching the 2% target set by the Federal Reserve.

That means the Federal Reserve will have to cut rates in 2024, as officials themselves estimated last month, but the central bank’s latest policy statement released on Wednesday pushed back expectations that the first rate cut could take place in March. Will happen.

“The Committee does not expect it would be appropriate to lower the target range for the federal funds rate until it has confidence that inflation is moving steadily toward 2 percent,” the statement said.

It’s the Fed’s latest attempt to give Wall Street a reality check on rate cuts.

When will the rate cut start?

Federal Reserve officials have been conveying this sentiment for weeks, and Wednesday’s statement is another sign from the Fed that investors need to reconsider their bets. Wall Street is slowly accepting the Federal Reserve’s guidance. In early January, futures showed that a rate cut in March was very likely, but these chances have since diminished and may continue to decline.

Overall, the rapidly weakening economy leading to job losses is an obvious reason for the Fed to start cutting rates, but the economy remains in good shape with low unemployment and economic growth in positive territory. Inflation has not yet reached the Federal Reserve’s 2% target, and the latest policy statement maintained a standard line that it “remains elevated.”

The big question facing the Federal Reserve today is: When is the right time to start cutting interest rates? There will be consequences if the Federal Reserve cuts rates too early and if it does it too late.

Federal Reserve Chairman Jerome Powell has said that rates should be cut before inflation reaches 2% because it is widely understood that monetary policy has a lagged effect on the broader real economy. Officials also consider the effects of rising “real” interest rates, which occurs when inflation declines but interest rates remain high, unnecessarily straining the economy and risking job losses.

In addition to stabilizing prices, the Federal Reserve is also responsible for maximizing employment, and the stakes are high because the central bank is on the verge of defeating inflation without increasing unemployment, a very rare outcome known as a soft landing. Is known.

The Federal Reserve faces a difficult balancing act in weighing the risk that the slowdown in inflation could stall, or even revive, with the risk that the Fed’s 11 previous rate hikes could inadvertently weigh too heavily on the economy. Unemployment is increasing.

Those risks are “better balanced,” according to Wednesday’s statement.

“It looks like we’re moving toward a soft landing scenario,” Subhadra Rajappa, head of U.S. rates strategy at Societe Generale, told CNN. “But the market has taken a 150 basis point cut, which has significantly eased financial conditions and could potentially delay the timing of any kind of normalization of monetary policy.”

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