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Fed Pushes Back Against March Rate Cut Speculation
The Fed kept rates on hold Wednesday. Obviously.
January's gathering was a placeholder meeting as officials ponder when to commence what the December dot plot suggested will be a trio of so-called "insurance cuts" in 2024 -- rate reductions for the purposes of managing risk.
The idea is to cut rates as inflation recedes in order to avoid passive tightening through the real-rate channel. So, "nothing to do with recession," as Chris Waller put it in late November. Rather, rate cuts merely to kee
I missed some of the presser but did catch Powell saying or inferring (my paraphrases)
– don’t know what R* is, some estimates are much higher than others
– don’t need or want slower growth or weaker labor market
– six months of good inflation data not enough, want to see more to be confident inflation is done
– anecdotals suggest economy is accelerating
– expect goods deflation to end
– rate cuts starting in March are unlikely, not the base case
My growing feeling is the FOMC may be thinking services inflation is still too high, economy is doing just fine at current rates, why should we rush to cut?
I previously thought that Fed would want to get rate cuts done well before the election. I no longer have any confidence in that.
Look forward to seeing the synopsis from someone who did watch the whole presser.
Historically speaking, rates at this level are not that high, and an economy as large and diverse as ours should be able to handle them. Of course, there’s a lot of debt out there, and debtors will push back against my claim. But I’m of the mind that Chair Powell thinks the U.S. economy would be better off with less debt and that one way to achieve that is to flush some of the egregiously bad debt out with higher-for-longer rates. Bad banks, bad derivatives, unproductive speculation propping up unsustainble asset valuations — better to flush it out now, before it reaches China proportions, no?