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Here’s what we’ve got for you today:

1. Fed Meeting: Jan 31 - Instant Reactions & Rate Implications & Forecasts ☕️

2. Clips from Fed Press Conference 🎥

By the way, this article on Fed Week! How to prepare your clients - is the most clicked link in this newsletter, you should check it out if you are interested.

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Rates Today 📉

Major Changes in Fed Statement

TLDR: Rates hold steady, first rate-cut pushed out until May

As expected, the Fed decided to hold rates steady in their January meeting. One key change in the official statement from the Fed was the removal of any bias that indicated any hikes were on the horizon. Other major changes to the Fed statement going into the press conference:

The message from Powell was clear - the Fed is not ready to start cutting. He continued to emphasize that more confidence from economic data was needed before the rate-cut cycle would start.

Following the statements we had the Fed press conference. Several of the questions from leading journalists from the NYT, WSJ, etc. all asked a similar question - “What is the Fed looking for that they haven’t already seen?”

GDP has remained strong as we saw in the Q4 numbers, the employment rate has stayed solid, and inflation is coming down - this is all exactly what the Fed wants to see - yet it’s not enough to instill confidence for rate cuts?

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My conclusion is this - if all the signs point to a soft landing in the economy - why would they throw a wrench in that when intervention is not needed? The Fed is opting to do nothing rather than cut and see the impacts that may be negative for inflation.

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What does it mean for rates?

Yesterday, the bond market soared - up nearly 40bps. While this looks like a causation from the Fed comments - it wasn’t. These improvements came mostly from economic data and news of regional banking struggles - not exactly due to the Fed statements.

Early projections from CME Group: Likely pushing first rate-cut out to May 2024.

Here are the early projections for the March Fed meeting. This compares the projections from a month ago (light blue) with the projections today (dark blue).

It was nearly a consensus that rate cuts were coming in March - that has since changed to less than a 40% rate cut in the next meeting.

Conversely, look at the changes in the May projections -

All signs point to a cut in May.

Clips from Fed Press Conference:

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— Michael F DiLucchio