Fed Balks At Cuts Anytime Soon, But Says Hikes 'Unlikely' | Axel Merk

Get ready for "high for EVEN longer" interest rates

Yesterday, May 1 2024, the Federal Reserve issued its latest policy statement, followed by a press conference by Fed Chair Jerome Powell.

The Fed held its policy interest rate steady at 5.25%, as expected.

Somewhat surprising to Wall Street was the Fed's announcement that it will reduce the scope of its Quantitative Tightening program starting in June.

US Treasury roll-off will be reduced to $25 billion per month, down from the current $60 billion per month.

Above and beyond that, Jerome Powell admitted that inflation is proving more stubborn to tame than the Fed hoped at the start of the year, and that getting it down sustainably to the Fed's 2% target will "take longer than previously expected".

This essentially is admitting that interest rates will stay high for EVEN longer.

Yesterday, Fed-watcher Axel Merk of Merk Investments joined me to offer his immediate reaction to the Fed's policy guidance as well as take live Q&A from the viewing audience.

For a de-coding of yesterday’s Fedspeak, click here or on the image below:

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Adam’s Notes: Jerome Powell Press Conference (recorded 5.1.24)

Given the time-pressures to produce & edit yesterday’s real-time event, I’m breaking from the traditional Adam’s Notes format and instead sharing my bullet-point notes of Jerome Powell’s press conference. I hope you find them useful.

PREPARED REMARKS

• The economy has made "considerable progress", 

• Inflation is still "too high", the path forward is "uncertain"

• The Fed is still committed to its 2% goal

• The Fed is leaving the policy interest rate unchanged at 5.25%

• It will start slowing pace of QT in June

  • USTs to be lowered from $60b/mo to $25b/mo; keeping MBS cap at $35B/mo

  • We’re still shooting for same final balance sheet target, just at a slower rate so we don't stress the system.

• Inflation has showed a "lack of further progress towards 2% target"

• Economic activity is expanding at "solid pace. Powell shrugged off the low 1.6% Q1 GDP print (he thinks underlying data remains “strong”)

• Consumer spending is "robust" despite high interest rates. Supply chains continue to heal (COVID was years ago — how much longer to they need??)

• The labor market remains