Economists foresee further uncertainty as the Federal Reserve maintains interest rates and Powell’s signals remain contradictory.

The Federal Reserve made an expected decision to maintain the federal funds rate between 5.25% and 5.5% for the second time in a row. Fed Chair Jerome Powell provided mixed signals during his press conference. While dismissing speculation of rate cuts, he expressed caution regarding inflation reaching the Fed’s target of 2%. However, he also emphasized that the current monetary policy stance is now restrictive. Powell suggested a cautious approach to further rate hikes, stating that the rate hike cycle is nearing its end. This uncertainty left economists and market participants uncertain about the central bank’s future actions. Economists weighed in on the Fed’s decision and Powell’s remarks, with some believing that the economy’s continuous expansion and low unemployment would likely lead to the stock market growing. Others noted that market dynamics and tighter financial conditions have alleviated pressure on the Fed to raise interest rates. One economist expressed concerns about borrowing rates impacting payroll and economic growth slowing below the long-term trend. Despite robust economic data, the Fed seemed to focus on economic risks related to recent geopolitical events and higher Treasury yields. This indicated a more balanced outlook on whether monetary policy is sufficiently restrictive. The market interpreted these actions as a signal that the Fed has completed its rate hike campaign for the current economic cycle, leading to a decline in 2-year Treasury yields and a rally in bonds.