Fed FOMC: Risk Map Shifts, Markets Read New Signals
The minutes of the Federal Reserve's January 16-17 meeting, released on Wednesday, are expected to provide a more detailed look at why the Fed chose to hold interest rates steady, as well as the "conditions" that must be met before the central bank believes further cuts are necessary. The primary focus will be on two issues: the slowing inflation trend and labor market risks, which are considered increasingly manageable.
In a press conference after the meeting, Fed Chairman Jerome Powell stated that there was "broad support" within the Fed for maintaining the policy rate in the 3.5%-3.75% range. This contrasts with the December meeting, when the decision to cut interest rates sparked a divergence of views—from those favoring a deeper cut to those favoring no cut at all.
Because the January decision was relatively unanimous, the minutes have the potential to reveal how officials assessed the balance of economic risks. Powell assessed that the major risks—both a spike in inflation and a spike in unemployment—appeared to be smaller, leading the risk landscape to appear more balanced than in previous months.
The Fed's mandate is to maintain maximum employment consistent with 2% inflation. Challenges typically arise when inflation remains above target while the job market begins to weaken—a situation Powell said he has felt in recent months, although those pressures are now said to be easing.
While agreeing to keep rates unchanged, policymakers may have differing priorities on how to respond and how quickly. Analysts are particularly focused on a key question: whether inflation will actually cool as Powell and other officials expect in the second half of the year.
Recent comments from Fed officials have been mixed. Chicago Fed President Austan Goolsbee said he still sees the possibility of "some" rate cuts this year if inflation falls from its current level, which is roughly one percentage point above target. Meanwhile, Fed Governor Michael Barr said the pause in rate cuts will likely last "for some time" until there is enough data to confirm that inflation is truly declining.
The Fed also noted that some of the current high inflation is due to import tariffs, the impact of which is still being passed from businesses to consumers, but many officials believe those effects are nearing or have already passed their peak. Citi analysts believe the Fed is "ready" to cut rates again if inflation eases—and that signal is expected to be reflected in the meeting minutes. The Fed's next meeting is scheduled for March 17-18, and the market widely expects rates to remain unchanged for the time being. (alg)
Source: Newsmaker.id
