Jerome Powell delivered a clear message to traders eager for the central bank to start slashing interest rates: Not so fast.

The Federal Reserve chair — and the post-meeting statement from policymakers — showed confidence that the central bank is on the verge of vanquishing the post-pandemic inflation surge, lending support to speculation it will cut rates significantly later this year.

But Powell forcefully pushed back on hopes of a first move at the next meeting in March — saying it’s unlikely to act that quickly as it waits for more signs that inflation is pulling consistently back to its target.

On cue, the S&P 500 tumbled 1.6% and traders dialed back bets on a March rate cut that had once seemed a strong possibility. Yet the longer-term outlook for the world’s largest bond market remained effectively unchanged, driving Treasury yields lower and leaving futures traders still banking on a series of downward moves by the Fed this year.

“The decision to begin cutting is of great consequence — I really think it is that they don’t want to rush into it,” Jeffrey Rosenberg, a portfolio manager at BlackRock Inc., said on Bloomberg television.

Expectations remained largely intact as the US trading day began Thursday. UK yields edged higher after two Bank of England policy makers voted to raise its rate, dissenting from the decision to keep it on hold at 5.25%. Another voted for a cut, however, and the BOE slashed its inflation outlook and dropped guidance about future hikes. Earlier, Sweden’s Riksbank held rates steady but said it may lower borrowing costs as soon as in the first half of the year.

Financial markets have been waiting for a firm Fed pivot since September, when it paused the most aggressive series of rate hikes since the early 1980s.

The prospect of lower rates helped to fuel last year’s sharp stock market rally, with investors anticipating that the Fed will manage to pull off a soft economic landing that was once seen as virtually impossible. For the same reason, bond yields have pulled back sharply from last year’s peaks, loosening financial conditions by driving down rates on corporate bonds, mortgages and other loans.

This month, though, markets have remained in limbo with stocks only mustering modest gains and Treasury yields rangebound.

Powell’s message — delivered after the central bank again kept interest rates steady — did little to provide any new direction, with the Fed chief underscoring the central bank’s data-driven approach and focus on taming consumer prices. 

First « 1 2 » Next