The Fed committed to pausing rate cuts. Why?
The FOMC meeting revealed the Fed's commitment to pausing rate cuts, which has been anticipated in the SOFR curve. The statement underwent scrutiny for any new changes, particularly concerning inflation language. Initially perceived as a hawkish stance, Chair Powell clarified during the press conference that these were merely language adjustments, which reversed the market's initial downward trend into an upward one. Current economic indicators show a balanced labor market, with a notable drop in initial jobless claims and flattening continuing claims. GDP growth data came in at 2.3%, slightly below expectations, but with consumer spending driving growth at 4.2%. However, fixed investment saw a contraction for the first time since 2023. The Fed's dual mandate seems well-supported by these conditions, suggesting a prudent decision to pause rate cuts as they assess the impact of previous cuts. Overall, the outlook remains cautiously optimistic as the labor market and consumer spending appear stable.
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