A Lack of Confidence

No shortage of things to discuss after today’s Fed statement and subsequent press conference. While the Fed did not cut rates – and nobody expected them to – today’s focus was on how the Fed would respond to the turn higher in inflation to start 2024. But for all the questions, there was a distinct lack of clear answers.

Let’s look first at today’s Fed statement, which included more changes than usual. In particular, a new sentence was added noting that “there has been a lack of further progress towards the Committee’s 2 percent inflation objective”.

Meanwhile, although the Fed did not cut rates today – or even signal they are considering doing so any time soon – they did take what could be considered easing action in the form of an announced slowdown in the pace of quantitative tightening (QT). Starting in June, the Fed will reduce the monthly cap on Treasury redemptions from $60 billion per month down to $25 billion per month, while keeping the redemption cap of agency debt and agency mortgage-backed securities at $35 billion per month.