U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Dec. 13, 2023.
Liu Jie | Xinhua News Agency | Getty Images
Immediately after the Federal Reserve wraps up its meeting this week, all eyes are likely to gravitate to one small piece of wording that could unlock the future of monetary policy.
In its post-meeting statement, the central bank is expected give an important hint about interest rate moves to come by removing a clause from previous statements that reads: “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time,” followed by an outlining of conditions it assesses.
For the past year-plus, the wording has underlined the Fed’s willingness to keep raising interest rates until it reaches its inflation goal. Remove that clause and it opens the door to potential rate cuts ahead; keep it and policymakers will be sending a signal that they’re not sure what’s to come.
The difference will mean a lot to financial markets.
Amending the wording could amount to a “meaningful overhaul” of the Federal Open Market Committee’s post-meeting statement, and its direction, according to Deutsche Bank economists.
“We heard at the December meeting that no official expected to raise rates further as a baseline outcome. And we’ve heard that Fed officials are beginning the discussions around rate cuts,” Matthew Luzzetti, Deutsche Bank’s chief U.S. economist, said in an interview. “So getting rid of that explicit tightening bias is kind of a precondition to more actively thinking about when they might cut rates, and to leaving the door open for a March rate cut.”
While the market has accepted for months that the Fed is likely done raising rates, the most burning question is when it will start cutting. The Fed last hiked in July 2023. Since then, inflation numbers have drifted lower and are, by one measure, less than a percentage point away from the central bank’s 2%…
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