Comparing Federal Reserve statements after each policy meeting has always been a favorite pastime of analysts and investors. When the central bank finds itself at an inflection point, attention to the changes that span just a few words becomes even greater. This Wednesday, the Federal Reserve's Monetary Policy Committee announced in its statement that it is keeping interest rates at 5.25% to 5.5%, the highest level in almost 23 years. However, changes in the wording suggest it is starting to set the stage for a cut in the coming months. But also that this cut can take some time.
The previous statement hinted at what the Committee would pay attention to when deciding whether to further tighten monetary policy. Now he is fundamentally changing the message: “As the Committee considers an adjustment to the target range of the federal funds rate, it will carefully assess the incoming data, the evolution of the outlook and the balance of risks.” The Committee does not believe it will be appropriate , reducing the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. “The Committee does not believe that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%,” the statement said.
That is, the Federal Reserve mentions for the first time the possibility of a rate cut and leaves it open, without completely ruling out a hypothetical increase that no one expects, but with the warning that it is necessary to find the clearest path to a cut to approve.
It's no secret that the Federal Reserve expects interest rates to fall this year. The committee members' own forecasts, updated in December, suggested a decline of 0.75 points this year by the end of the year. The question is when and at what pace. The bets were shared. The market indicated the likelihood that a first cut would occur in March, but after the warning in this Wednesday's statement, that possibility no longer exists. Most analysts are inclined to expect quarterly discounts of 0.25 points from the second quarter, starting with the May or June meeting.
After the statement, the market awaits the indications of the President of the Federal Reserve, Jerome Powell, at the press conference called for this Wednesday at 2:30 p.m. (8:30 p.m. in mainland Spain) in Washington. The latest data suggests the economy continues to grow strongly but inflation is easing – an ideal soft landing scenario for the central bank.
The focus will be on how Powell interprets the latest economic data. The economy grew 0.8% quarterly and 3.1% year over year in the fourth quarter, showing surprising strength. For the full year, gross domestic product (GDP) rose 2.5%, according to the first estimate released last Thursday by the Commerce Department's Office of Economic Analysis. Meanwhile, the Federal Reserve's preferred inflation gauge slowed to 2.9% in December, falling below 3% for the first time since the start of 2021, according to data released Friday by the same organization.
Over the past two years, the price of money has risen five points, the most aggressive monetary tightening since the 1980s, precisely to counteract the highest inflation in four decades. The central bank has not changed interest rates since July last year, but Powell has managed to maintain tension. He has repeatedly pointed out that even more important than the maximum level that the price of money reaches in this cycle of monetary tightening is the question of how long high interest rates will be maintained.
[Noticia de última hora. Habrá ampliación en breve]
Avalanche of treasury problems
The US Treasury Department updated its estimates of new debt issuances this Wednesday, concluding that an avalanche of new paper will hit the market in the coming months. The first appointment is next week. The Treasury plans to raise $121,000 million in debt to reach a maturity of around $105,100 million on February 15, resulting in net financing of around $15,900 million. The Treasury Department will sell $54 billion in three-year bonds, $42 billion in 10-year bonds and $25 billion in 30-year bonds in three auctions on February 6, 7 and 8 spend.
There was also an increase in emissions targets for the months of February, March and April. The Treasury plans to increase the size of 2- and 5-year auctions by $3 billion per month, 3-year auctions by $2 billion per month, and 7-year auctions by $1 billion. dollars per month to increase. As a result, the 2-year, 3-year, 5-year, and 7-year auction sizes will increase by $9 billion, $6 billion, $9 billion, and $3 billion, respectively, by the end of April 2024, it said announced. The United States has increased its debt due to the federal deficit, which was $1.7 trillion last year.
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