Policymakers left interest rates unchanged at 5.25% to 5.5%, the same level they have been since July. Jerome Powell maintained hope for a cut this year while acknowledging that a surge in inflation has reduced policymakers’ confidence in easing price pressures. 

While the FED governor indicated that price growth will likely slow down this year, he refrained from providing a specific timeline for rate cuts. As Powell himself admitted, this uncertainty could influence the confidence needed for such a decision, potentially impacting investment strategies.

 As recently as March, Powell said it would likely be appropriate to begin cutting rates “at some point” this year, a phrase he did not repeat on Wednesday. The Fed chief also added that the next policy move will unlikely be a rate hike. Authorities would need “convincing evidence” that the policy is not restrictive enough to bring inflation back to the 2% target before considering raising rates again. Powell’s comments eased investors’ fears that the central bank leader would more vigorously oppose a rate cut this year or even signal a possible hike.

The Fed also announced it would slow the pace of reducing its balance sheet on assets maturing from June onwards. The Treasury runoff cap will decrease from $60 billion to $25 billion per month, while the cap for mortgage-backed securities will remain at $35 billion.

In the six weeks following the Fed’s last meeting in March, officials increasingly expressed concerns about available data suggesting either inflation stagnation or a reacceleration. Policymakers explicitly acknowledged this data by adding a line to their post-meeting policy statement emphasizing the “lack of further progress” toward their inflation target in recent months.

Chairman Powell’s baseline scenario remains that inflation will resume a downward trend, meaning he still sees the likelihood of rate cuts this year. He has so far ruled out any rate hike moves. However, he remained very vague about the timeline. It is doubtful that upcoming economic data will sufficiently trigger a rate cut at the next June meeting, where the FOMC should revise its rate hike projections upward. There will then be four meetings left before the end of the year. Unless there is an external shock or an unlikely reversal of the U.S. economy, three rate hikes for 2024 seem more than uncertain.