Fed likely to hold rates steady as labor market, inflation remain stubbornly strong

CIO of Global Fixed Income at BlackRock, Rick Rieder says that the Federal Reserve provided little clarity on the timing of future interest rate cuts in its latest policy statement and press conference on Wednesday. This is reinforcing expectations that rates will remain on hold for the coming months as policymakers assess incoming economic data.

Rieder argues that despite market hopes for looser monetary policy, U.S. economic indicators—particularly labor market conditions—continue to show resilience, suggesting little need for further accommodation. December’s payroll report showed a robust 256,000 jobs added, while average hourly earnings climbed 3.9% year over year. Additionally, the latest Job Openings and Labor Turnover Survey (JOLTS) revealed an increase in job vacancies, rising to 8.1 million in November from 7.8 million the previous month. These figures contradict the labor market weakness the Fed has indicated would be necessary to justify further rate cuts.

He adds that inflation, meanwhile, remains above the central bank’s 2% target, with progress in lowering price pressures appearing to have stalled in recent months. However, some moderation may be on the horizon, largely driven by a slowdown in owners’ equivalent rent (OER), which has recently stabilized around 0.3% month-over-month—aligning with pre-pandemic levels.

Rieder concludes with looking ahead, investors will be watching closely for any shifts in the Fed’s policy stance as economic data evolves. However, for now, expectations for significantly lower interest rates appear misplaced. Instead, maintaining a portfolio focused on high-quality income-generating assets with yields exceeding inflation remains a prudent strategy.

This article was written by Eamonn Sheridan at www.forexlive.com.