QI Research CEO and Chief Strategist Danielle DiMartino Booth discusses Federal Reserve Chairman Jerome Powell’s comments on the federal criminal investigation into “Making Money.”
The Federal Reserve On Wednesday, it left rates unchanged amid growing uncertainty about the impact of the Iran war on the economy and in turn on the central bank’s approach to monetary policy, raising questions about whether there will be rate cuts this year.
The Fed’s monetary policy panel, known as the Federal Open Market Committee (FOMC), voted 11-1 to leave the Fed funds rate unchanged at a range of 3.5% to 3.75%. It was the second straight meeting where rates were held steady after three consecutive 25 basis point cuts in September, October and December ending last year.
Policymakers published a summary of economic projections (SEP), which showed that the median projection for interest rates has just one cut of 25 basis points for the rest of this year, followed by a single cut of that magnitude in 2027.
“In our SEP, FOMC participants have written their individual estimates of an appropriate path for the Federal Funds Rate under what each participant considers the most likely scenario for the economy,” Federal Reserve Chairman said. Jerome Powell said. “The average participant predicts that the appropriate level of the Federal Funds Rate will be 3.4% at the end of this year and 3.1% at the end of next year, unchanged from December.”
FEDERAL RESERVE KEEPS INTEREST RATES STABLE
Federal Reserve Chairman Jerome Powell said a rate cut this year will depend on progress in curbing inflation and other economic data. (Brendan Smialowski/AFP via Getty Images)
“As is always the case, these individual forecasts are subject to uncertainty and do not constitute a committee plan or decision,” Powell added.
During the news conference after the announcement, Powell was asked what officials are seeing that led them to predict a cut, despite higher forecasts for both inflation and unchanged projections for the economy. unemployment rate and economic growth.
The SEP showed that policymakers predicted that the personal consumption expenditure (PCE) index – the The Fed’s favorite inflation gauge – will reach 2.7% by the end of this year, well above the central bank’s target of 2%. That’s up from 2.4% in the Fed’s previous projection in December.
Core PCE, which excludes volatile measurements from food and energywas also revised to 2.7% at the end of this year. In the previous projection this stood at 2.5%.
THE FED’S FAVORITE INFLATION GAUGE REMAINS Stubbornly HIGH IN JANUARY as pressure on consumer prices continues
“There are 19 people, so 19 reasons, 19 individual submissions,” Powell said. “If you notice, the median didn’t change, but there was actually a significant movement toward fewer cuts by people, so four or five people went from two cuts to one cut.”
“Essentially the prediction is that we will make a few progress on inflation“Not as much as we had hoped, but some progress on inflation,” Powell said. “That should come when we start to see progress in the mid-year on tariffs, which are implemented once and then tariff inflation comes down. We should see that.”
“And you know, the rate forecast depends on the performance of the economy, so if we don’t see that progress, then you’re not going to see the rate cut,” he explained.
FED officials are closely monitoring the conflict in Iran for possible inflationary impacts
The market responded to the Fed’s projection by rolling back interest rate expectations interest rate cuts this year, which were previously scheduled to begin in June.
The CME FedWatch tool showed an 89.2% probability that rates will remain at their current levels after the June Fed meeting in the wake of today’s announcement. That’s up from 79.5% yesterday, 62.8% a week ago and 37.8% last month – while the tool now also shows a 3.8% chance of a 25 basis point increase in June, compared to zero a month ago.
The market now thinks it is more likely than not that the Fed will leave interest rates unchanged until the end of this year.
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The CME FedWatch tool shows a 51.3% chance that rates will remain at current levels after the Fed’s December meeting — up from 23.5% a week ago and 4.9% last month.
The odds for December show a 35.7% chance of a 25 basis point cut by then, while the chance of a second cut between now and then has fallen to 9.5% from 32.5% a month ago.
