What did we learn 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 labor 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 labor 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.

Important information

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Should this contain any forward-looking statements, understand they are not guarantees of future results. They involve risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from expectations.

Balance sheet run-off refers to the Federal Reserve reducing its balance sheet by electing not to reinvest some or all of the principal repaid when securities mature. 

Inflation is the rate at which the general price level for goods and services is increasing.

Disinflation, a slowing in the rate of price inflation, describes instances when the inflation rate has reduced marginally over the short term.

Hawkish is to favor relatively higher interest rates if they are needed to keep inflation in check.

Tightening monetary policy includes actions by a central bank to curb inflation.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

The Federal Open Market Committee (FOMC) is a 12-member committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.

The opinions referenced above are those of the author as of Jan. 31, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.