Spring Rain Delay

The Federal Reserve Open Market Committee (FOMC) left its target for overnight interest rates unchanged at a range of 5.25% – 5.50%, their fifth unchanged decision. Both markets and Fed officials have ruled out the necessity of further tightening barring any tail risk to inflation. Even though policy rates have remained unchanged for about 9 months, the bias among policymakers has shifted toward cutting, as the math of monetary policy grows more restrictive each time inflation eases. What remains uncertain is the timing of any cuts. Whereas some participants had hinted at an immediate need, the early-2024 economic data have delayed the near-term prospects of rate cuts. In sum, they’re coming; we just don’t know when.

Data since the FOMC met in January has been neutral in terms of growth and debatably higher in terms of inflation. The Atlanta Fed’s GDPNow tracker estimates 1Q24 growth at 2.1%, below the 3.2% reported in 4Q23. Within that overall figure, consumer spending seems to have slowed, as evidenced by February’s soft retail sales, while housing markets seem to have accelerated. Trends within inflation data are a bit more material for the Fed’s purposes at the moment. Both January and February saw the core CPI print +0.4%, the fastest back-to-back readings in 9 months. It looks like both readings were “fluky,” with a few volatile components or methodology shifts contributing to the elevated numbers. But for a Fed awaiting “more confidence” that inflation has decelerated to a 2% run rate, even noisy upside inflation results have an effect in delaying the most likely path for monetary policy.

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