The Federal Reserve just announced that it’s keeping the current interest rates at the 5.25%-5.50% range. The Wall Street anticipates rate cuts coming early this year but Fed Chair Jerome Powell pointed out that now is not an opportune time.
The Fed: There’s No Need For Cuts
According to CNN Business, Powell confirmed in a post-meeting press con that “there was no proposal to cut rates.” The Fed Chair also dismissed any rate cuts in March as they are yet to see “greater confidence” that inflation is already on a sustainable path to 2%.
“The Committee does not expect it will be appropriate to reduce the target range for the federal funds rate until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” an official statement of the Fed also read.
Powell’s added notes confirmed that the economy has not yet achieved a soft landing. A soft landing is the goal of a central bank in which it adjusts interest rates in a way that’s just enough to combat inflation without catalyzing a recession. Historically, the Fed has a mixed record in accomplishing this.
“Certainly, I’m encouraged — and we’re encouraged — by the progress, but we’re not declaring victory at all at this point,” said Powell.
The Fed’s announcement quashed expectations for impending rate cuts in March, which the stock market didn’t take kindly. Following that, the Dow Jones dropped by 0.8%, the S&P 500 dipped by 1.6%, and Nasdaq Composite slumped by 2.2%.
Despite maintaining the status quo, the Fed’s stance somehow helped balance out the uncertainty surrounding the economic landscape of the US. Previously, JPMorgan CEO Jamie Dimon criticized the nation’s ballooning debt, which he blamed on the spike in government spending.
“It is a cliff, we see the cliff,” Dimon described the US economy.
General Effects of Interest Rate Cuts to the Economy
Normally, interest rate cuts result in a boost of economic activity due to the lower cost of borrowing, which in turn gives people more money to spend. Likewise, businesses tend to take advantage of this event to purchase equipment and improve their investment, thus, leading to a significant increase in their productivity.
On the other hand, the highest cost of repayment during interest rate hikes makes people and businesses reluctant to make large loans. The hesitance of industries to spend more for their inputs, therefore, potentially causes lower productivity.
Hours after the announcement (as of this writing at 7:30 AM UTC), Bitcoin is trading around $42,100, showing over 1% dip in the 24-hour chart. The trading volume of the digital asset moved up by 14% within the period as $25.96 worth of BTC was exchanged. During this timeframe, the cryptocurrency swung between a low of $41,879 and a high of $43,717.