US Federal Reserve holds rates steady

The US Federal Reserve (the Fed) [link] decided to keep rates the same for the sixth straight time, and more importantly, gave no indication as to when it might “pivot” and begin to cut interest rates. The Chairman of the Fed, Jerome Powell, said today in a press conference that he expects inflation to resume easing this year, but that his “confidence in that is lower” than it was, and that he’s not sure the prospect of easing inflation is “sufficient” to pivot in 2024. Mr. Powell did say, however, that further rate increases are “unlikely” and that the Fed’s next move is likely to be a cut; it’s just not clear when the conditions for that first cut will be right.

MB bottom-line: This should put an end (for now?) to the worries that things were bad enough to warrant at least one more round of increases. The BSP isn’t scheduled to meet for another two weeks, so we have a lot of time to digest what the Fed has just done (or not done), plus next week’s April inflation data, before we ramp up the chatter around what the BSP could do. As we’ve covered here many times before, our inflationary problem here is one caused by constrained supply, not excess demand. Many here have been calling for the BSP to cut rates to spur the economy since cheapening the cost of capital isn’t going to spike the price of rice, but that pesky exchange rate keeps slipping closer and closer to ?58:$1 and a cut is going to make that look a little worse. Have to wait and see.

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