Federal Reserve Holds Steady on Interest Rates

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Updated: Jan 31, 2024, 20:04 UTC•2min read

Fed is not ready to start the rate cut cycle before it sees inflation moving lower.

Key Insights

• Federal funds rate remains at 525 – 550 bps. 
• Fed wants to see a continuation of good inflation data before cutting rates. 

On January 31, Fed released FOMC Statement. The central bank decided to leave the federal funds rate unchanged, in line with the analyst consensus. Fed noted that inflation has eased over the past year but remained elevated.

Fed noted: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2 percent.”

Demonstrating caution, Powell stressed it was important to have greater confidence that inflation was moving towards the 2% target.

Fed remains focused on inflation data, wanting to continue seeing good inflation data before making any decisions. Powell said that the key risk was that inflation could stabilize at a level above Fed’s 2% target.

Fed Chair also noted that it was too early to say that U.S. economy enjoyed a soft landing and that there was plenty of work to do.

Overall, Powell was not hawkish, but it remains to be seen whether markets would be ready to aggressively bet on rate cuts after his press conference.

U.S. Dollar Index was swinging between gains and losses as traders reacted to Powell’s words. Treasury yields are moving lower as traders bet that Fed will soon start cutting rates.

Gold was also volatile as traders monitored the dynamics of the American currency.

SP500 pulled back towards the 4860 level. The sell-off in leading tech stocks continues to put pressure on major indices.

For a look at all of today’s economic events, check out our economic calendar.

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