Will the Fed Rate Cut Be Delayed Further?
The U.S. Federal Reserve has reopened discussions concerning the feasibility of lowering the interest rate, prompted by recent data on nonfarm employment.
Inflation continues to hold steady. Over the past 9 months, it has fluctuated between 3% and 3.7%, while the Fed's target remains at 2%. Meanwhile, the interest rate has been persistently high, with its range of 5.25%-5.50% set back in July 2023. It hasn't been this high since 2001 (and nearly as high in 2006).
In his speech to the Stanford Graduate School of Business, Jerome Powell remarked that while the readings had turned out higher than expected, they hadn't significantly altered the overall picture. The labor market continues to show steady growth, remaining strong yet balanced. Additionally, Powell noted that inflation is "moving down toward 2% on a sometimes bumpy path."
Comments from Atlanta Fed President Raphael Bostic to CNBC proved rather hawkish. On April 3, he stated that rates would unlikely be cut until the fourth quarter of this year. Furthermore, he anticipates that only one 0.25% cut will be appropriate this year.
It's worth noting that the extent to which the interest rate will be lowered in 2024, if at all, remains uncertain. This uncertainty stems from the fact that statistical data is updated monthly, directly impacting the Fed's decisions.
As of the time of writing, the market anticipates that the interest rate will remain unchanged at the next meeting in May, with a probability of 93% (according to the CME FedWatch Tool). Expectations for June are more optimistic, with the probability of a reduction to the target range of 5-5.25% standing at 64.7%.
“Fed Chairman Powell finally told the truth. Last week he finally admitted inflation is winning. The Fed can no longer promise I flation at 2% or that inflation is “transitory.”
US Consumer Price Index YoY Source: Investing.com
The labor market, akin to the inflation index, serves as a pivotal gauge for the Federal Reserve in formulating interest rate policies. Low unemployment rates (and correspondingly high employment rates) empower the Fed to either contemplate interest rate hikes with greater assurance or maintain the status quo.
So, where do we stand today? Data from the Automatic Data Processing (ADP) Research Institute reveals that nonfarm employment surged by 184,000 in March, surpassing the anticipated adjustment of 148,000. The previous reading stood at 155,000.
In his speech to the Stanford Graduate School of Business, Jerome Powell remarked that while the readings had turned out higher than expected, they hadn't significantly altered the overall picture. The labor market continues to show steady growth, remaining strong yet balanced. Additionally, Powell noted that inflation is "moving down toward 2% on a sometimes bumpy path."
Comments from Atlanta Fed President Raphael Bostic to CNBC proved rather hawkish. On April 3, he stated that rates would unlikely be cut until the fourth quarter of this year. Furthermore, he anticipates that only one 0.25% cut will be appropriate this year.
It's worth noting that the extent to which the interest rate will be lowered in 2024, if at all, remains uncertain. This uncertainty stems from the fact that statistical data is updated monthly, directly impacting the Fed's decisions.
As of the time of writing, the market anticipates that the interest rate will remain unchanged at the next meeting in May, with a probability of 93% (according to the CME FedWatch Tool). Expectations for June are more optimistic, with the probability of a reduction to the target range of 5-5.25% standing at 64.7%.
Target Rate Probabilities for May 1, 2024 Source: cmegroup.com
Robert Kiyosaki, the acclaimed author of "Rich Dad Poor Dad," offered a pointed comment on the Federal Reserve's recent actions:
“Fed Chairman Powell finally told the truth. Last week he finally admitted inflation is winning. The Fed can no longer promise I flation at 2% or that inflation is “transitory.”
Kiyosaki emphasized his preference for “hard, real money,” noting that he exclusively holds real gold, silver, and Bitcoin.
This article does not provide financial advice and should not be relied upon for investment decisions. Always remember to do your own research.
Dmytro Psevdonimenko
Author
Has been exploring the enigmas of the crypto industry since 2017, transforming them into accessible narratives. Relies on dark chocolate and nuts as a secret source of energy and inspiration.
