In this article we review:
- The Federal Reserve’s recent January meeting and Chair Jerome Powell’s post-meeting press conference
- Comments from Powell striking a balance between current restraint but still potential future rate cuts
- Why we still believe there is a realistic probability of two quarter-point rate cuts in CY 2025
- Reiteration of our year-end federal funds rate, 10-year U.S. Treasury yield, and S&P 500® forecasts
As expected, the Federal Reserve left the federal funds rate unchanged at a target range of 4.25–4.50% following its meeting concluding on January 29. In his post-meeting press conference, Chair Jerome Powell gave an overview of current Fed policy positioning and in so doing provided potential rationale for both current restraint and future easing.
With this in mind, we view the following points as being important to investors:
Clarifying the statement. Markets immediately reacted to what at first looked like a hawkish omission in the wording of the Fed statement versus that of last December, in which the phrase “(Inflation) has made progress toward the committee’s 2% objective,” had been removed. However, early on in his post-meeting comments, Chair Powell clarified that the omission was not meant to infer the committee was less confident in current inflation trends, which it views as “still consistent” with a 2% target, but merely that the committee had cleaned up language to start the new year by no longer referencing the term, “since earlier in the year.”
Repeated references to, “no hurry.” In describing the Fed’s current position on potentially reducing rates in the foreseeable future, Powell used the phrase, “We do not need to be in a hurry to adjust our policy stance,” (or similar wording including “no hurry”) on five occasions. This was mostly in reference to the fact the committee had reduced the fed funds target range by more than 1% since last September and was now in a position to wait to see further progress on inflation before implementing more rate cuts. In addition, he stated that “policy is now very well calibrated” when taking these rate reductions of the past several months into account.
Future rate cuts could still be on the table in the year ahead. Powell stated, “We never said we needed to be all the way at target (2% inflation) to reduce rates,” which, in our view, leaves the door open to more cuts in the event personal consumption expenditures core inflation declines modestly from its most recent 2.8% reading. Powell also commented that 12-month inflation was “setting up well for further progress” based largely on the lagging effects of owners' equivalent rent and housing services costs. Finally, Powell also referred on two occasions to current policy (fed funds target range) as being “meaningfully restrictive,” inferring potential room for more rate cuts if inflation does further decline.
Amid various politically motivated questions, Powell did not take the bait. On several occasions, Powell was questioned about the new administration’s potential future economic policies and if the Fed might act in anticipation of them. In this regard, he stayed above the fray, informing the public that he has not had any contact or communication with the president and that the committee is “waiting to see what policies are enacted (in regard to) tariffs, immigration, fiscal, and regulatory policy.”
We view this January Fed meeting and press conference as striking somewhat of a balance between accommodation and restraint, providing respective arguments for both hawks and doves. However, in our view, the door remains open for our forecast of two quarter-point rate cuts between now and year-end, most likely in the second half of the year, concluding 2025 with a fed funds target range of 3.75–4.00%. We continue to see the 10-year U.S. Treasury yield finishing the year close to its current level at approximately 4.50%, and we maintain our year-end price target on the S&P 500 of 6,500.
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