Are Interest Rate Cuts On The Horizon?

Mark Waggoner – 3/12/2024

Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee on March 7, 2024, included a statement that the Fed is closely approaching the confidence needed to reduce interest rates. This cautious optimism is due to the progress made in curbing inflation, with recent data showing headline inflation at 2.4% and core inflation at 2.8%. Powell stressed the Fed’s intent to avoid pushing the economy into a recession and noted that adjusting the level of policy restriction could commence this year if inflation continues its downward trajectory.

Powell’s comments emphasized a cautious approach, indicating that rate cuts would only be considered once there is greater confidence that inflation is sustainably moving towards the Fed’s 2% target. This means a strategic balance between the need to control inflation and the desire to support continued economic growth and employment.

The Fed chair also highlighted the importance of not rushing to cut rates until inflation is firmly under control, suggesting a delicate balance between acting too soon, which could rekindle inflationary pressures, and delaying too long, potentially harming the economy. With the next Federal Open Market Committee (FOMC) meeting scheduled for March 19-20, 2024, further clarity on the Fed’s policy direction for the year, including any adjustments to interest rates, is anticipated.

Based on Powell’s testimony and the current economic indicators, the FOMC’s first action on interest rates in 2024 is cautiously anticipated for June. This timeline reflects the Fed’s careful navigation through the economic landscape, aiming for a ‘soft landing’ that effectively curbs inflation without triggering a recession.

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