Fed chair denies any guidance on rate cuts, hints at restriction instead

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Federal Reserve officials, led by Chair Jerome Powell, backed away on Tuesday from providing any guidance on when interest rates may be cut. His words have dashed investors’ hopes for meaningful reductions in borrowing costs this year.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell told a forum in Washington, in what is likely to be his last public appearance before the April 30-May 1 policy meeting

The dollar remained largely unchanged, with the euro trading at $1.062 during Asian trading hours on Tuesday, close to the five-and-a-half-month low of $1.06013. Against a range of currencies, the dollar stood at 106.33, slightly below the five-month high of 106.51 recorded on Tuesday.

“Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” Powell said at a forum in Washington.

Powell’s remarks effectively extinguished any remaining hopes for the Fed to reduce rates in the short run, as markets now anticipate September as the initiation of the easing cycle, postponing it from June.

Traders currently expect a reduction of 41 basis points in 2024, a significant decrease from the 160 basis points of easing they had anticipated at the beginning of the year.

“Powell and other Fed officials are sticking to the view that rate cuts have been delayed rather than abandoned, which continues to give investors comfort,” said Ben Bennett, APAC investment strategist at Legal And General Investment Management.

Now the first cut is expected in September and the odds of a second cut are dwindling.