Bankinter: The main messages to come out of the 31 January meeting are: Growth outlook revised upwards after a solid Q4. Employment and wages remain strong but have moderated. The overall and underlying PCE readings will continue to decelerate in 2024, but are still off target. Uncertainty in the projections remains high, but has been reduced. Risks to the inflation projections stand out. Fed members put on the table the possibility that further progress in reducing inflation may take longer than expected. The main risks stemming from inflation are: a reacceleration of inflation due to premature rate cuts, geopolitical/supply chain risks and wage growth remaining at elevated levels. They will start discussing the possible slowdown in the pace of balance sheet reduction at the next meeting.
Analysis:
Among the comments reflected in the minutes, it stands out that most of the directors warn about the risk of lowering rates prematurely. They make it clear that we have reached the peak in interest rates and that they will continue to maintain a data-dependent approach. In this regard, they insist that they will carefully assess the data. The Fed does not want to make the mistake of lowering rates prematurely and macro strength buys them time. Our estimates published in the Strategy for 2024 report projected a slower pace of rate cuts (starting in Q3) than the one expected by the market (March 2024). The market has been shifting its expectations and now puts the first rate cut in June with a 70% probability.
