Powell Says March Cut Is Unlikely

The Federal Reserve’s Federal Open Markets Committee kept the benchmark federal funds rate steady. Surprisingly, he explicitly took a March rate cut off the table. But some are asking what the Fed is ultimately waiting for, as 3- and 6-month views of core inflation are already below the target 2% rate.

No one should be surprised that the Fed didn’t cut rates in this January meeting. Even the most optimistic were saying March, and now that seems likely off the table, given Jerome Powell’s remarks during the press conference. “Based on the meeting today, I would tell you that I don’t think it is likely that the Committee will reach a level of confidence by the time of the March meeting.

“We have a ways to go” to a soft landing, Powell said in answer to a question. “Core inflation is well above our target, on a 12-month basis. Certainly, we’re encouraged by the progress, but we’re not declaring victory at this time.”

Economist Claudia Sahm wrote on social media, “I agree no soft landing yet, but core inflation 12-month has a two-handle” — that is, there are 3- and 6-month views that show inflation below the 2% level. A question from the press conference raised the same point and whether, as some on Wall Street say, there’s the potential for inflation running below the 2% target.

Powell agreed that with inflation falling and strong labor and economic growth and called the economy “good. In terms of below-2% inflation, that’s not what the Fed looks for, but there is some variation up and down that might happen, which is why they want to keep a longer-term view.

“We have confidence. We’re looking for greater confidence that inflation is moving sustainably down to 2%,” Fed Chair Jerome Powell said in a press conference. “We want to see more good data. It’s not that we’re looking for better data. It’s that we’re looking for the continuation of the good data we’ve been seeing. A good example is inflation. We have six months of good inflation data. The question really is that six months of good inflation data, is it sending us a true signal that we are in fact on a sustainable path down to 2% inflation. The answer will come from some more data that also is good data. It’s not that the six-month data isn’t low enough. It is. It’s just a question of can we take that with confidence that we’re moving sustainable to 2%.”

“The Federal Reserve continues to stay the course and maintain interest rates for Q1 2024 – with the first rate cut expected to fall in Q2, Avison Young anticipates new economic prospects in commercial real estate,” Avison Young Principal and U.S. President Harry Klaff said in prepared remarks. “Opportunistic buyers will spend the next few months doing market research and price discovery, focusing on prime assets in retail, multifamily and industrial sectors. With significant capital on the sidelines, our expectation is that the combination of rate cuts and pricing resets for all asset classes will fuel significant activity later this year.”