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Fed Inflation Story 'Not Really Changed': Morning Brief

Fed Inflation Story 'Not Really Changed': Morning Brief

This is the takeaway from today's morning briefing, and what you can do subscription Received in your inbox every morning with:

The Federal Reserve (US central bank) on Wednesday kept its expectations that it will cut interest rates three times this year unchanged.

And hearing it from Fed Chairman Jay Powell, the reason behind this is no mystery – the Fed's inflation story hasn't changed either.

Pointing to inflation readings in January and February, which signaled a halt in progress in inflation's return toward the Fed's 2% target, Powell said that together these readings “didn't really change the overall story, which is that inflation is moving down gradually on an annual basis.” Sometimes it's a bumpy road towards 2%.”

During the remainder of Powell's news conference, the word “bumpy” was used to refer to inflation's path at least six more times.

And so the bumps will continue. But as Powell explained elsewhere in his news conference, a return to 2% inflation β€œis our goal, and we will achieve that goal.”

Heading into Wednesday's news, investors remained mostly fixed on the Fed's “dot chart,” which suggested in December that three rate cuts would be warranted by the end of this year. The stock market's rise to record highs on Wednesday shows that investors were pleasantly surprised to see the Federal Reserve confirm those expectations.

Powell's chart of the current inflation story offers investors a valuable tool in dealing with the volatility of monthly economic data: resilience.

Between now and the Fed's June meeting – when many on Wall Street expect interest rate cuts to begin – inflation data, on the margins, becomes less important. Readings that show inflation falling more or less than expected should not be an occasion to repricing the Fed's future plans.

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WASHINGTON, DC - MARCH 20: Federal Reserve Chairman Jerome Powell speaks during a press conference at the bank's William McChesney Martin Building on March 20, 2024 in Washington, DC.  Following the Federal Open Markets Committee meeting, Powell announced that the Fed left interest rates unchanged at around 5.3%, but indicated that it may cut rates three times later this year as inflation declines.  (Photo by Chip Somodevilla/Getty Images)

Federal Reserve Chairman Jerome Powell speaks during a news conference at the bank's William McChesney Martin Building on March 20, 2024, in Washington, D.C. (Chip Somodevila/Getty Images) (Chip Somodevilla via Getty Images)

In his press conference, Powell remained firm that interest rate cuts will be needed “at some point” in 2024. Furthermore, the Fed chair reiterated that interest rates are likely to be at their highest levels during the current cycle.

Passing on suggestions from some corners of financial commentary that inflation data could bring rate hikes back to the Fed gave Powell no quarter on Wednesday.

When pressed on the timing of future interest rate cuts, Powell simply said: “We have not made any decisions about future meetings today.”

Although this is true narrowly, there is no doubt about what the Fed's future holds broadly. Especially when you allow for a lot of bumps along the way.

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