Bankinter | The Fed kept its benchmark interest rates (Fed Funds) in the 3.50%/3.75% range, in line with expectations. They will let ‘the data speak for itself’. The decision was not unanimous, with two votes in favour of cutting -25bp (Miran and Waller). Powell highlighted the improvement in growth expectations to ‘solid’ from “moderate” in his previous statement in December and, with regard to the unemployment rate, showed ‘signs of stabilisation’ in contrast to the message of an increase in his previous statement. With regard to inflation, he maintained the message that it ‘remains somewhat elevated’.
Bankinter analysis team’s view: The tone of Powell’s message was somewhat more hawkish. The decision to resume rate cuts will be ‘data dependent’, so they seem to be entering a ‘wait and see’ mode, as they consider that they have done much of the rate normalisation after the three rate cuts made in 2025 (Sept, Oct, and Dec). Our expectations point to two rate cuts (March and June) and perhaps an additional one in the second half of the year. The timing of these decisions could be delayed. On the other hand, we must not forget that the appointment of the new Fed chair is pending (Powell’s term ends in May) and Trump has shown his preference for a more ‘proactive’ profile in lowering rates and stimulating growth.
