IGI Logo

Below the Quote on Dr Vikas Gupta, CEO and Chief Investment Strategist , OmniScience Capital . 

Equity Markets exhibited signs of discontent as the S&P 500 dropped by 1.61% and the Nasdaq-100 by 1.94%, suggesting anticipation of a possible March rate cut by the Federal Reserve (Fed). However, Fed Chair Jerome Powell, in the subsequent press conference, explicitly dismissed the likelihood of a March rate cut, emphasizing the need for data-driven decisions.

Powell underscored the Fed's dual mandate of achieving maximum employment and controlling inflation, with a particular focus on the risks to employment. In contrast to previous meetings where unemployment increase was tolerated, the emphasis has shifted. The current narrative revolves around preserving employment and preventing the economy from slipping into a recession.

Notably, Powell stated that the Fed is no longer considering increasing unemployment. The communication hints at a growing inclination toward rate cuts to safeguard against economic downturns and excessive job losses. Powell acknowledged the importance of monitoring specific data points, especially the continued decline in PCE inflation at both headline and core levels, along with decreasing services inflation.

The FOMC's internal deliberations likely revolve around a cautious approach. The prevailing sentiment could be summarized as follows: "Visible data indicates inflation is likely to stabilize within the 2% range by H1 2024. Considering the potential risks, it may be prudent to initiate rate cuts in March or May, without procrastination, to prevent a recession and unnecessary job losses. While past inflationary concerns have been supply chain-driven and seem under control, caution is warranted. The timing depends on close judgment calls and avoiding premature market reactions."

The March rate cut's probability hinges on the pace of PCE inflation decline. If labor markets stay robust, the Fed's pressure to cut rates diminishes, yet remains present. A fast decline in inflation or significant job losses could make a March rate cut nearly certain. Postponing rate cuts to May would necessitate unemployment remaining at 3.7%, inflation at 2.6% or above, and strong real GDP at 2% or higher. The Fed aims to balance economic stability with careful consideration of data and market reactions.

Above views are of the author and not of the website kindly read disclaimer