Joe Biden Gets Boost from Fed Rate Decision

The U.S. central bank held rates at their current range for the fourth straight time, signaling that the hiking cycle may be over setting up the stage for possible rate cuts in 2024. The possible reduction of rates, which, at their current two-decade highs, have helped push up borrowing costs across the economy, could be a boost for President Joe Biden as they could reduce the cost of buying a home and business investment.

Beginning in March of 2022, the Federal Reserve raised rates at the most aggressive pace since the 1980s to battle inflation that had soared to 40-year highs. Since then, inflation has slowed while the jobs market has kept hiring even at a slower pace and the economy has continued to grow amid elevated rates.

On Wednesday, Fed policymakers acknowledged that dynamic in their rate decision.

"Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low," they said. "Inflation has eased over the past year but remains elevated."

Rate cuts in 2024 could buoy the economy and add to the momentum of an economy that is growing and adding jobs. That could help Biden as he seeks reelection at a time when some doubt whether he is the best leader to handle the U.S. economy.

Central bank policymakers alluded in their statement that they are getting closer to meeting their 2 percent inflation target as they held rates to their current 5.25 to 5.5 percent range.

"The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks," policymakers said.

"In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

Fed Chair Jerome Powell suggested at a later press conference with reporters that the current tightening cycle had reached its peak even as he warned that they are closely watching for risks of elevated inflation.

"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," Powell said.

The central bank chief's "executive summary" of the economy was that it was performing well.

"Growth is solid to strong over the course of last year," Powell said. "This is a good economy."

Analysts suggested that the Fed's language in its statement signaled a slashing of rates was coming.

"The statement did indicate some fairly significant changes to its statement regarding the expected direction of future policy, confirming that the next move will likely be a cut," said Mortgage Bankers Association's chief economist Mike Fratantoni. "We continue to expect a first cut at the May meeting, with three cuts in total this year."

Powell suggested that policymakers want to gain increased confidence that inflation was trending toward target and ruled out the possibility that rate cuts were coming as soon as March as some analysts had expected.

"We are going to be data dependent, we're going to be looking at this meeting by meeting," he told reporters. "Based on the meeting today, I would tell you that I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting."

Experts suggested that the Federal Reserve has pivoted to begin a rate-cut cycle soon, even if Powell declined to give a full timeline of when they will kick-start the process.

"The Fed today officially acknowledged that they would like to lower rates in the near future, but have not yet given an indication of how soon they will begin the rate cutting process," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a note shared with Newsweek. "It's not a matter of if, but when, they will be cutting rates."

Powell in his remarks after the release of the statement said that the economy was doing well but inflation was still elevated and that the soft landing that some economists said has been achieved was still yet to be secured.

"We have a ways to go. Inflation is still, core inflation, is still well above target," he said. "We are encouraged by the progress, but we are not declaring victory at all at this point."

Some analysts said that the cautious tone Powell tried to strike on Wednesday was because they did not want to make a mistake.

"The Fed was badly burned in late 2021 and 2022 when they thought high inflation would be transitory, then got caught by surprise when it was higher and more persistent than expected," Bill Adams, chief economist for Comerica Bank, said in a note shared with Newsweek. "They want to avoid making the same mistake twice.

"The Fed will wait to pull the trigger on rate cuts until they see the whites of 2 percent inflation's eyes."

Adams said that a March cut was still possible but uncertain.

"Rate cuts are very likely to start by the second quarter of 2024, though," he said. "It's data-dependent."

Update 1/31/24, 4:15 p.m. ET: This article was updated with additional information and comment.