What we learned from the January Federal Reserve meeting

This afternoon, I live tweeted my perspectives on the US Federal Reserve (Fed) announcement and press conference. As a refresher, the Fed has kept rates steady for its past three meetings, and today followed that trend.

But while there were no changes to US interest rates today, there were several changes to the language in the Federal Open Market Committee (FOMC) statement. In my view, the Fed announcement is attempting to keep a lid on easing financial conditions while admitting that progress has been made on disinflation.

Here are some highlights from Fed Chair Jay Powell’s Q&A session following his press conference:

• Powell admitted that the US economy and labour market have been strong, BUT inflation is coming down. He acknowledged that a year ago, the Fed thought it needed to see a softening of economic data to cause inflation to adequately ease. But now, the Fed is comfortable with the strength of the economy, Powell said, and it doesn’t believe the economy needs to weaken to see inflation be tamed.
• Powell did admit that if there is an unexpected weakening in the labour market, then that would speed up the start of rate cuts. But he tried to be hawkish by saying that more persistent inflation would move the timeline for cuts in the other direction.
• He described the US economy as a ‘pretty good picture’. He’s clearly pleasantly surprised that the Fed didn't destroy the economy while bringing down inflation, although he does anticipate the economy will slow (just not dramatically).
• Powell also said a March rate hike is not likely. And I have to stress that that’s OK — it’s not about when the rate cuts start but how much is cut in 2024, and I expect it be higher than what the Fed anticipated in December.
• The Fed’s balance sheet run-off so far has been going very well, Powell said, and he plans to begin in-depth discussions of the balance sheet in March.
• Powell added that the Fed could cut rates and make alterations to balance sheet run-off at the same meeting. He sees them as separate tools, which is good to hear. The more flexibility the Fed has, the better.

Follow me @kristinahooper on X for live tweets from the next Fed meeting in March.