Fed's Rate Pause Continues, Powell Sends Mixed Signals: What Economists Predict Comes Next

In a widely expected move, the Federal Reserve announced its decision to keep the federal funds rate within the range of 5.25% to 5.5%, marking the second consecutive rate pause.

Fed Chair Jerome Powell delivered mixed signals during his press conference. On one hand, he dismissed speculations of rate cuts, as he cautioned there is still a long way to go before inflation reaches the Fed's target of 2%.

On the other hand, he emphasized the current stance of monetary policy is now restrictive.

“We have come very far with this rate hike cycle and are close to the end of the cycle,” Powell stated, suggesting a cautious approach to further rate hikes.

The uncertainty surrounding the Fed’s next moves left economists and market participants guessing what the central bank might do next.

Economists Weigh In On Fed’s Rate Decision, Powell’s Remarks

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, observed the economy was in a continuous expansion phase, unemployment remained at low levels and absent clear signals indicating the Fed’s intention to resume interest rate hikes or an imminent recession, the stock market was likely to see upward drift.

According to Bill Adams, chief economist for Comerica Bank, the Fed’s statement reflected a consensus among policymakers that tighter financial conditions and long-term interest rates, primarily influenced by market dynamics, alleviate the pressure on the Fed to raise the fed funds target rate.

“The Fed is and should be done with its rate hike cycle,” stated Joseph Brusuelas, economist at RSM US LLP. Brusuelas expressed concerns about the impact of double-digit borrowing rates on payroll and business expansion, which he believed could lead to economic growth slowing below the long-term trend.

Charlie Ripley, senior investment strategist for Allianz Investment Management, highlighted that despite robust economic data, the Federal Reserve seemed to be placing greater emphasis on economic risks related to recent geopolitical events and the impact of higher nominal Treasury yields. Ripley noted a significant takeaway from Powell’s comments, which indicated the risks associated with whether monetary policy was “sufficiently restrictive” have become more balanced.

Lisa Abramovicz, a Bloomberg columnist and fixed-income market reporter, commented the market was interpreting the U.S. central bank’s actions as a signal that it had completed its rate hike campaign within the current economic cycle. This sentiment was reflected in the significant decline in 2-year Treasury yields.

Bonds rallied following the Fed’s rate decision and Powell’s press conference with the iShares 20+ Year Treasury Bond ETF TLT up 1.8%.

Read Next: Bond Expert Jeffrey Gundlach Says Inflation Should Fall, But US Will Be In Recession In 2024

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