Herding Hawks at the Fed
Jack Janasiewicz discusses the nuances of inflation, the first Federal Reserve meeting of the year, and the Fed’s need for “greater confidence” to appease the inflation hawks before it cuts rates.
- One month into 2024 and it seems like Groundhog Day all over again, at least with stocks. US equities led the pack with large cap tech continuing to drive returns.
- By comparison, the bond market was a bit lackluster with yields ending the month roughly where they started.
- Growth and inflation were the key themes and inflation data continues to improve – particularly core PCE (Personal Consumption Expenditures) – the Federal Reserve’s preferred inflation measure.
- As expected, the Fed continued to hold rates steady at 5.5% in January, but there were a few notable takeaways from Fed Chair Jay Powell’s statement.
- Powell suggested that the committee is still waiting for “greater confidence” that inflation is moving sustainably toward its 2% target before easing rates.
- While Powell may be ready to ease, he needs the consensus of the committee – including the inflation hawks – to reach a unanimous decision and some voters are not quite there yet.
- But rate cuts are now a matter of “when”, not “if” – and cuts will come not because growth is cratering, but because inflation is returning to target.
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