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Analysis: The Fed, With A Focus On Inflation, Dashes Wall Street’s Hopes For A March Cut

Students must satisfy requirements for the 2024 IRS for $2500 American Opportunity Tax Credit 2024 (AOTC) helps qualifying students pay for school (Photo from marca.com)

Chairman Jerome Powell dashed hopes that policymakers will drop borrowing costs in March, sending a harsh warning to investors anticipating for impending rate cuts by the Federal Reserve about the policymaker’s primary focus—fighting inflation.

Equity Markets

Some investors were disappointed when Powell stated, at the conclusion of the central bank’s first monetary policy meeting of the year on Wednesday, that inflation that is still above the Fed’s target would probably preclude policymakers from cutting rates at their next meeting in March.

Some market participants played down the significance of the postponement, arguing that stable growth and a persistent downward trend in consumer prices were more significant than the timing of the first decrease. Despite the Fed’s predictions of 75 basis points, markets are still pricing in about 140 basis points of cuts this year.

At the close of last year, stocks and bonds surged on anticipation that the Fed had completed its rate-hiking campaign and would soon start lowering rates. Since looser monetary policy lowers borrowing costs for consumers and businesses while pushing bond yields lower, it is often considered as a positive for equity markets.

“There are going to be investors who were offsides in their positioning,” according to Josh Jamner, Investment Strategy Analyst at Clear Bridge Investments, given that a sizable portion of investors anticipated a rate cut in March.

Fed

Source: CNN

nevertheless, “whether the first cut comes in March or May is not where the fulcrum is for how the economy unfolds into a soft landing or a recession,” according to him.

Prioritize The Economy

Powell did, in fact, provide a solid defense of the state of the American economy, pointing out that inflation is declining in the face of persistent economic and job growth.

“The economic data that we receive between now and March will be extremely important for influencing market movements,” Conning North America’s chief investment officer Cindy Beaulieu stated.

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