Investors resign themselves to less aggressive rate cuts in the United States

Wait and see.

That is the attitude that the president of the Federal Reserve, Jerome Powell, has adopted for months.

Investors are anxious, analysts are betting, but the US central bank has not touched interest rates since last July.

Nor will it do so at this Wednesday's meeting, according to all forecasts.

Attention is focused on something else: the clues that Powell gives about when the rate cuts will begin and the forecasts formulated by the components of the Federal Open Market Committee (FOMC).

The resistance of inflation has pushed away rate cuts and investors are resigned to them being less aggressive than they expected just two months ago.

The message of higher rates for longer that came out of the Jackson Hole seminar last summer has become a reality.

The price of money is at 5.25%-5.5%, its highest level in 23 years.

At the last meeting of each quarter, FOMC members formulate their forecasts for the economy.

In them, they discuss what they believe will be the appropriate monetary policy, a forecast of where they believe it is most likely that the federal funds interest rate will have to be placed to meet its double legal mandate: to promote maximum employment and the stability of prices.

Last December, the median of these forecasts pointed to a rate cut of 0.75 points this year, to 4.625% (or in other words, to the range of 4.5%-4.75% ).

Some expected a few months ago that the first cut would come at this meeting.

However, the strength of the labor market and the resistance of inflation to travel the last mile to the 2% target have led Powell to rule out imminent cuts.

The stock market overcomes

Futures market quotes show that the market is only expecting those same three rate cuts of 0.25 points this year.

They discount one per quarter starting in June, when a few months ago investors were betting on more aggressive cuts in anticipation of the economy losing strength and inflation falling faster.

The new landscape has had an impact on fixed income, but the Stock Market has been able to climb to highs.

The FOMC forecasts have a qualified value because those who formulate them are basically the ones who have to make the decision, although they do not compromise their actions and frequently deviate from reality.

The 19 members of the committee have an opinion, not just the 12 with the right to vote.

The first focus of attention on Wednesday will be to see if this 0.75 point reduction forecast is maintained, after inflation has risen to 3.2% in February.

“February's consumer price index will not instill further confidence among Fed members that inflation is on a sustainable path toward its 2% target, reducing our subjective odds that the central bank will cut interest rates.” interest in its May meeting,” Oxford Economics analysts pointed out after the publication of the data.

“While on its own, [the data] may not be enough to prevent the Federal Reserve from cutting rates by mid-year, it should raise real questions about the extent to which inflation will return to target in the absence of further easing in the labor market,” said Tiffany Wilding, an economist at Pimco.

Job creation remains robust, although the unemployment rate has risen to 3.9%.

Powell has declared himself dependent on the data.

To get a better picture of what's happening in the economy, you'll probably want to wait.

At the monetary policy meeting on April 30 and May 1 he will have few new ingredients in the shaker and most investors are aiming for the last meeting of the spring, June 11 and 12.

Election year

In his last speech in Congress, Powell made it clear that he is in no hurry.

With a cautious “probably” ahead, he admitted that rates have peaked.

At the same time, he assured that if the economy evolves in line with expectations, “it is likely that at some point this year it will be appropriate to start” lowering rates.

But in his speech he recalled that the goal of 2% inflation has not yet been reached and that success is not guaranteed.

Therefore, he warned both against the risk of relaxing monetary policy too much or too soon and against the risk of doing it too little or too late.

In an election year, the decisions of the Federal Reserve are going to be analyzed with a magnifying glass.

Democrats are urging Powell to lower rates and Donald Trump has baselessly accused him of planning to do so to facilitate Joe Biden's re-election.

“We don't think about politics.

“We think about what is right for the economy,” the president of the Federal Reserve answered in December.

The recent Odysseus

mission

showed how complicated a soft landing on the Moon is.

Recent history shows how difficult it is to achieve this in economics, which borrowed the term from the space race and gave it its own meaning: controlling inflation without causing a recession.

A year ago, economists were using a recession as their central scenario.

Now, a soft landing seems possible, but not guaranteed.

Tom Barkin, president of the Richmond Federal Reserve, pointed out four risks at the beginning of the year: “The US economy could run out of fuel.

We could experience unexpected turbulence.

Inflation could stabilize at a cruising altitude above our 2% target.

And the landing could be delayed if the US economy continues to defy expectations.”

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