(LIVE) Powell's press conference

Fed left interest rates unchanged in the 5.25-5.50% range at the first meeting of 2024, in-line with market expectations. Statement turned out to be hawkish due to a lack of an even slightly dovish turn. While reference to additional policy firming was removed from the statement, it was noted that Fed members do not see cutting rates as appropriate before they gain greater confidence that inflation is moving sustainably towards the 2% target. Moreover, no adjustments were made to the pace of quantitative tightening. It looks like Fed wanted to cool market expectations for quick rate cuts - money markets saw a 70% chance of the first rate cut being delivered in March prior to today's decision and now they are more or less evenly split between March and May meetings.

Post-decision press conference of Fed Chair Powell began at 7:30 pm BST. Below are key takeaways:

Opening statement

• Economy has made good progress towards dual mandate
• Inflation has eased without significant increase in unemployment
• Inflation still remains too high
• Policy rate is well into restrictive territory
• Activity in the housing sector has subdued
• Labor market remains tight
• Labor demand still exceeds supply
• Longer term inflation expectations appear well-anchored
• Policy rate is likely at its peak for the current tightening cycle
• It will likely be appropriate to begin reducing rates sometime this year
• If the economy evolves as expected, we will dial back the policy rate this year
• I am prepared to maintain the current policy rate for longer if needed
• Reducing policy restraint too soon or too much could reverse inflation progress
• Reducing policy rate too late could unduly weaken the economy
• We continue to make decisions on a meeting-by-meeting basis

EURUSD erased all the post-announcement gains during Powell's opening statement. Equity indices also moved higher, with US500 trading above pre-decision levels.

Q&A session

• We have confidence, but need more confidence
• We have six months of good inflation data. On inflation data, need to make sure what we are seeing is a true signal
• We don't think we necessarily need to see weaker growth for inflation to come down
• It seems likely we will achieve confidence on inflation
• Almost everyone on the committee believes it will be appropriate to reduce rates
• We are really in a risk management mode
• Timing of cuts is linked to our confidence
• We are not looking for a slide in employment, but would cut rates if we saw a weakening
• There was no proposal to cut rates today
• There is a wide disparity of views on the committee
• Economy is broadly normalizing
• I think lower rent costs are coming
• Supply chains not yet back fully to where they were
• There may still be a tailwind on disinflation from goods
• I would not say we have achieved soft landing yet. We are not declaring victory
• A lot of the economic growth we are seeing is due to post-pandemic healing, when that peters out, our restrictive rate will show up more sharply
• Labor market is normalizing but it will probably take a couple year for wages to normalize
• If inflation moves back up, that would be a surprise at this point. I am more concerned that inflation will stabilize at an elevated level
• We do expect growth will moderate
• We are not looking for inflation to tap 2% once, we are looking for it to settle out at 2%
• Based on the meeting today, I don't think it is likely we will have enough confidence by March meeting to cut rates
• We had some discussions on the pace of balance sheet reduction at this meeting, but we plan to hold more in-depth discussions at the next meeting

It seems that March meeting may be too soon for the Fed to cut rates. However, if NFP data for January and February disappoint significantly, March rate cut cannot be ruled out. EURUSD erased gains made during Powell's opening statement during the follow-up Q&A session. Equity indices are also pulling back with US500 trading below 4,900 pts mark.