Powell Throws Cold Water on March Rate CutPowellThrowsColdWateronMarchRateCut

The Federal Reserve gave its strongest indication yet that it will lower interest rates this year, but the odds of a March cut appeared dimmer as officials search for convincing signs that inflation is on track to hit their target. The central bank made no change to its policy rate on Wednesday and removed language from its statement that previously left open the possibility of a rate hike. In a new statement, the Fed also said its policy-setting committee “does not expect it will be appropriate” to lower rates “until it has gained greater confidence that inflation is moving sustainably toward 2%.” Chair Jay Powell said during a press conference it seemed unlikely that officials will have “greater confidence” by the time they meet again in March, throwing cold water on market expectations that a rate cut was imminent. The Bank of England echoed the Fed’s sentiment on Thursday by signaling it needed more evidence of inflation’s retreat before cutting rates.

Some Fed officials have said in recent weeks that policymakers should be in no rush to cut rates, given the overall strength of the US economy and lingering concerns over price pressures in the services sector. Powell also noted that officials are looking for wage growth to cool and return to a level that is historically associated with 2% inflation. Data published on Wednesday indicated that wages grew at a slower pace in the fourth quarter, and ADP’s estimate that private-sector employers added 107,000 jobs in January was weaker than anticipated. The Labor Department’s jobs report on Friday is forecast to show a gain of 185,000 jobs last month, compared with 216,000 in December. PGIM Fixed Income Chief US Economist Tom Porcelli highlights some key takeways from the Fed’s meeting and discusses potential challenges as officials wait for what Powell termed “more good data.”