The Federal Reserve is keeping interest rates steady as consumer confidence improves and inflation slows

The Federal Reserve announced on Wednesday that it will keep interest rates at their current levels Amid improved consumer confidence and lower inflation rates.

In the run-up to Wednesday's announcement, some Fed officials indicated that the current rate was enough to bring inflation down toward the central bank's 2% target.

The target federal funds rate has remained at 5.25% to 5.5% since last summer, after 11 increases starting in March 2022. The rate sets a benchmark for other interest rates across the economy — everything from credit cards to mortgages, business and auto loans. Loans.

Some economists believe that these high rates helped reduce inflation.

In December, the main consumer-focused measure of inflation, the 12-month Consumer Price Index, was 3.3% – a slight change from the previous month's measure of 3.1%.

The Fed's preferred measure of inflation, the personal consumption expenditures price index, came in even lower, at 2.6%.

In remarks this month, Federal Reserve Governor Christopher Waller said that slowing inflation, coupled with continued flat employment gains, has led to an economic landscape that is “almost as good as it is now.”

“The progress I have observed on inflation, combined with available data on economic and financial conditions and my expectations, makes me more confident than I have been since 2021 that inflation is on its way to 2%,” he said in written statements. To the Brookings Institution, according to TAssociated Press.

Meanwhile, two measures of consumer confidence show that Americans are starting to feel more optimistic about the economy. On Tuesday, the Conference Board's Consumer Confidence Index reached a two-year high due to what the business group said were “rising views on current conditions” and “declining pessimism about… [the] future.”

This followed a reading earlier this month from the University of Michigan Consumer Confidence Survey that reached its highest level since 2021.

However, there are already some signs that post-pandemic economic growth has peaked. The US Department of Labor reported on Tuesday that fewer Americans left their jobs last year than in 2022, while the seasonally adjusted level in December fell to the lowest monthly level in about three years.

Economists believe that workers are more likely to leave their jobs if they believe there is a better opportunity waiting for them.

“Overall, various labor market indicators show that the labor market is holding up well, but there are signs of weakness such as low employment rates and high unemployment rate,” Citibank analysts said in a note to clients on Tuesday. “We will continue to monitor unemployment claims data as one of the most relevant indicators of the labor market.”

At 3.7%, the unemployment rate is now back to pre-pandemic levels, although it has crept up from its post-pandemic low of 3.4% in January 2023. Four-month moving average of weekly initial jobless claims There has been no significant increase in the entire post-pandemic period.

But January saw a large number of layoff announcements, especially in white-collar industries such as… Technique And the media.

“Increasing reports of local layoffs underscore that labor market conditions are not as strong as they were a year ago and that some pockets of weakness have emerged,” Lydia Boussour, chief economist at consulting firm EY, said in a note to clients on Tuesday.

However, traders believe the economy is still strong enough to estimate the likelihood of the Fed's first rate cut in March. in 61.5% – down from 73% probability a month ago. If the Fed does cut interest rates in March, it will have been two years since it first started raising them to fight inflation.

Not everyone is optimistic about the imminent interest rate cut.

“We believe markets are overly optimistic that we will see a rate cut from the Fed in March,” Joe Davis, global chief economist at Vanguard, said in a note to clients on Tuesday.

“It will likely be mid-year before policymakers are confident that they have reined in inflation enough to start lowering their target for short-term interest rates.”