If there’s one thing you can say about Fed policymakers, it’s that they don’t make decisions on a whim. When the Federal Open Market Committee met on Jan. 31, 2024, it held interest rates steady – as most observers expected. That marks six months since the Fed last changed the base rate.
And people should expect to wait a little while more: Fed Chair Jerome Powell said a rate cut was “not likely” to come at the next meeting in March. But over the course of his news conference after the meeting, he emphasized that nothing is set in stone.
The Federal Reserve has what is called a dual mandate: Its job is to achieve maximum employment and keep prices stable. Often there’s a trade-off between these goals: Cutting rates often helps with the former, while lowering them helps with the latter.
And in recent months, controlling inflation has been the focus of Fed policy. In his remarks on Jan. 31, Powell made it clear that Americans shouldn’t expect the Fed to do anything to rates until the U.S. gets closer to its target of 2% inflation. And that could take some time.
There’s a reason Powell and his fellow policymakers are focused on the 2% inflation target. So long as consumer price index inflation is above 2%, the concern is that any lowering of interest rates could stimulate the economy too much and reignite inflation.
Still, the federal funds rate, which helps determine mortgage and loan rates and quite a bit more, remains at 5.5%, higher than it’s been in 16 years. The Fed has raised rates 11 times since early 2022.
That aggressive rate-hiking has had the desired effect of putting the brakes on the economy. But it comes with some pain for borrowers – and some are now eager to bring rates back down.
Cutting rates usually makes sense when the economy is getting significantly worse, and there’s not much reason to think that’s happening now. Fourth-quarter gross domestic product grew 3.3% on an annualized basis, ending 2023 on a strong note. The economy added more than 2 million jobs over the course of 2023. And consumer price index inflation is running at about 3.3% in December 2023.
If there’s one thing you can say about Fed policymakers, it’s that they don’t make decisions on a whim. When the Federal Open Market Committee met on Jan. 31, 2024, it held interest rates steady – as most observers expected. That marks six months since the Fed last changed the base rate.
And people should expect to wait a little while more: Fed Chair Jerome Powell said a rate cut was “not likely” to come at the next meeting in March. But over the course of his news conference after the meeting, he emphasized that nothing is set in stone.
The Federal Reserve has what is called a dual mandate: Its job is to achieve maximum employment and keep prices stable. Often there’s a trade-off between these goals: Cutting rates often helps with the former, while lowering them helps with the latter.
And in recent months, controlling inflation has been the focus of Fed policy. In his remarks on Jan. 31, Powell made it clear that Americans shouldn’t expect the Fed to do anything to rates until the U.S. gets closer to its target of 2% inflation. And that could take some time.
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