In the aired program on CBS News' "60 Minutes" yesterday (Sunday, February 4, 2024), Jerome Powell, the Chairman of the U.S. Federal Reserve, reiterated the robustness of the American economy, emphasizing that this strength allows the Federal Reserve to exercise caution when making decisions regarding lowering interest rates.
Powell further expounded on his statement made after the Federal Open Market Committee (FOMC) meeting, emphasizing the central bank's hawkish stance even more.
Consequently, the likelihood of interest rate cuts in the USA is now shifting to the second half of the year, leading to a strengthening of the dollar, and resulting in the EUR/USD exchange rate once again dropping below 1.08.
During the interview segment, Powell articulated, With a strong economy, we feel that we can approach the question of when to start lowering interest rates cautiously. Both I and my colleagues are endeavoring to pinpoint the opportune moment to initiate a shift in our restrictive policy. However, it is reasonable to afford ourselves some time and assess whether the data continue to confirm a sustainable decline in inflation to the targeted 2%.
The head of the world's most influential central bank also indicated that the Federal Reserve is unlikely to attain a high level of certainty before the upcoming March meeting, just seven weeks away. Market expectations were riding on this meeting as they anticipated the first interest rate cut of the year.
Powell added, A March interest rate cut is not the most likely scenario or our base projection. The economy is currently in a favorable position, and there is every reason to believe that it could improve even further. However, I remain cautious about whether we have achieved a soft landing, and there is still work to be done in that regard.
Despite this, Powell underscored the active consideration by the central bank regarding when to commence the reduction of interest rates, emphasizing that they won't wait until inflation returns to the 2% target.
This stance provides a level of certainty that interest rate cuts will likely commence later this year, with the base scenario pointing towards the second half of the year.
The rationale behind this lies in the Federal Reserve's attempt to strike a delicate balance, avoiding the risk of cutting rates prematurely, which could result in an inflation rebound. Conversely, the risk of cutting rates too late could lead to a recession.
Powell articulated, It is reasonable to give ourselves some time and assess whether the data continue to confirm a sustainable decline in inflation to 2%.
On the flip side, Powell acknowledged that several of the 19 top officials at the Federal Reserve are hesitant to lower interest rates at all in the current year. This implies that while there is overwhelming support for interest rate cuts, achieving a consensus on this matter is proving challenging.
Consequently, the EUR/USD exchange rate is continuing its rebound, initiated on Friday from the resistance zone of 1.09. Currently, it is testing the support defined by the upward trend line that commenced in September 2022. Surpassing this critical zone could signal a substantial southward movement, potentially reaching below 1.07.
With only a few of the top Federal Reserve officials expressing reluctance to lower interest rates this year, it is certainly reasonable to assume that cuts will occur. We are merely attempting to select the most opportune moment, considering the overall context, Powell reassured.
It's important to recall that in December 2023, the median forecast of Federal Reserve officials predicted three interest rate cuts, each by 25 basis points, in the current year.
Powell emphasized in the Sunday interview on "60 Minutes" that he does not believe these forecasts have undergone any significant changes.
05.02.2024
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