The Fed keeps interest rates unchanged. The outcome is not too surprising.
After three cuts last year, the current level is high enough to pin down inflation but has not caused the economy to break. Inflation is still above 2%, unemployment is around 4% - temporarily still stable, and growth shows no signs of collapsing. There have been no dramatic incidents forcing them to act.
With Powell's character, you know, he is patient and does everything based on data. Cutting rates is not difficult to happen, the important thing is that the necessary conditions for cutting are very different from before. The Fed is not looking for positive signals; they need clear evidence that inflation is sustainably decreasing or that the labor market is clearly weakening. Without those two crucial factors, it is highly likely they will have to wait until the second half of the year to reassess.
The reason the Fed is so rigid is that they fear cutting too early and inflation returning. At that point, long-term yields rise, the USD weakens, commodity prices increase, and the Fed loses control of expectations. Making a mistake here could be very costly, so staying put is the best outcome for the current moment.
Many people think that not cutting means no tightening. The reality is the opposite when inflation gradually decreases while keeping interest rates unchanged, real interest rates increase. The policy continues to tighten passively without the Fed needing to do anything further.
The Fed emphasizes independence and decisions based on economic data, not political influence. This is the message for the bond market and system confidence.
Overall, with the asset market, this meeting does not bring liquidity. It's just a short-term PUMP/DUMP phase for both the stock and cryptocurrency markets. Yields will be hard to drop significantly if the Fed hasn't opened the cuts, and there's no reason for the USD to collapse.
What do you think about this FOMC meeting?
