MAY 6, 2024 – FED MEETS: RATES TO REMAIN UNCHANGED FOR NOW
Due to inflation remaining stubbornly high in recent months, the Fed said it doesn’t plan on lowering interest rates until it has “greater confidence” that inflation is approaching the 2 percent target. The news was not a surprise. Rates are at a 23-year high. The Fed believes rates are “restrictive” and it is unlikely rates will go any higher. The Fed also said it is shrinking its balance sheet at a slower pace, reducing the maturities from $60 billion a month to $25 billion a month.
Disappointing inflation data has derailed plans for a rate reduction this summer, but it also raised fears the Fed may say rates need to go up. Powell dispelled that rumor saying, “it’s unlikely the next policy rate move will be a hike.”. The Fed was unclear on when rate cuts could occur, citing numerous economic factors, but did say an unexpected weakening in labor market could speed up the first cut.
To that, on Friday the Labor Department released weaker than expected April Employment data. The unemployment rate has moved up to 3.9 percent from 3.8 percent , and only 175,000 new jobs were created, well below the estimate of 240,000.
Investors were betting on no rate cuts until November before the employment figures were announced, but in light of the weakening in the labor market, they are hopeful for two cuts in 2024, the first happening in September.