Federal Reserve Takes Wait-and-See Stance on Interest Rates

New York, NY, May 2, 2024”-The Federal Reserve acknowledged a recent setback in its inflation fight but said it was more likely to keep interest rates at their current level for longer than to raise them again,” reports the Wall Street Journal.

“Officials held their benchmark federal-funds rate steady Wednesday at a range between 5.25% and 5.5%, the highest in two decades and a level it reached last July, following a run of economic data that revealed simmering price pressures in the economy.

“Fed Chair Jerome Powell indicated that the bar to cut interest rates had gone up, but that the bar to hike rates was even higher.

“‘It’s likely to take longer for us to gain confidence that we are on a sustainable path’ to lower inflation, Powell said. He said he expected inflation would resume its decline this year, but added, ‘my confidence in that is lower than it was.’

“At the same time, he said, for officials to put hikes back on the table, they would need persuasive evidence that higher interest rates weren’t bringing down inflation. ‘That’s not what we think we’re seeing,’ Powell said. ‘That will be a question that the data will have to answer.’

“In the run-up to Wednesday’s announcement, investors had been squirrelly over the prospect that Powell might entertain rate hikes. Stocks moved higher after Powell said he thought rate hikes were unlikely, but then they reversed course as investors digested his comments.

“The S&P 500 rose as much as 1.2% in the afternoon, then closed down by 0.3%. The turnaround marked the index’s biggest blown gain in more than a year.

“‘The hurdle to hike is higher than the market had priced in,’ said Michael de Pass, global head of rates trading at Citadel Securities. ‘They feel comfortable with where policy is.’”