What to Expect in the Fed’s Policy Statement and its Economic Projections, and an Updated 2:30 pm News Conference with John Powell
Federal Reserve officials will conclude a two-day policy meeting on Wednesday, releasing a fresh decision on interest rates at a time when economic growth remains resilient and inflation has shown recent signs of stubbornness.
This is the first update to the projections since December. The estimates will be watched very closely for the Fed’s prediction of the path of interest rates. The policymakers thought that the rates would fall to 3.6 percent by the end of the decade.
If the Fed lowers borrowing costs too early, then it will be hard to stamp out future price increases, since inflation will go back to 2 percent. But if the Fed keeps rates high for too long, it risks hurting the job market. It has the tendency to go up a lot when unemployment goes up.
Here is what to look for in the Fed’s policy statement and its economic projections, which come out at 2 p.m., along with the 2:30 p.m. news conference.
Given inflation’s recent staying power, it is possible that officials could predict slightly quicker price increases at the end of 2024 when they release their quarterly economic projections.
The most important part of the Fed meeting will be a 2:30 pm news conference with Mr. Powell. He gave two days of congressional testimony in March and his comments on Wednesday will be important for any changes he makes after the Fed’s next policy debate.
The Fed chair may be asked to clarify a comment he made during those appearances: At one point, Mr. Powell said that it would be appropriate to lower interest rates when the Fed was confident that inflation had come down enough, adding, “and we’re not far from it.”
Mr. Powell is also likely to reiterate a message he’s been offering for months now, which is that there are risks to cutting rates too early, and there are also risks to leaving rates high for too long.
During his testimony, Mr. Powell said that he was trying to use his policies to keep the economy going, and to keep the labor market strong.
There is a policy project on the plate for Fed officials in March. They have signaled in recent communications that they will discuss plans for their balance sheet of bond holdings at this meeting. Fed officials have been shrinking their balance sheet by allowing securities to expire without reinvestment, a process that takes a little bit of steam out of markets and the economy.
Recent measures show prices are still climbing faster than the central bank would like. The Fed has kept interest rates at their highest level in more than twenty years in order to bring down the prices of goods and services.
The benchmark rate was decided to remain between 5.25 and 5.5%. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed said in a statement.
So far, the economy has weathered high interest rates in relatively good shape. The unemployment rate has been below 4% for more than two years. Employers have added an average of 265,000 jobs in each of the last three months.
The housing market has taken a hit because of higher interest rates. Sales of existing homes fell 19% last year, dropping to their lowest level since 1995. Freddie Mac said the average interest rate last week was 6.4%), down from a peak of 8% in October.
Retail sales have slowed recently, a sign that some consumers are struggling with high prices and high borrowing costs. Credit card debt topped $1.1 trillion last year, according to the Federal Reserve Bank of New York, and the number of card users who are behind on their payments now exceeds pre-pandemic levels.