Economists evaluate Fed decision

The US Federal Reserve kept the policy rate unchanged in line with expectations at its January meeting, keeping it between 5.25-5.50 percent. Thus, interest rates remained unchanged at the 4th meeting and remained at the highest level in 22 years. The Fed signaled that it was open to reducing interest rates but that the reduction would not happen immediately. Chairman Jerome Powell said in March regarding the expectation of a rate cut, “The Fed is unlikely to have sufficient confidence to reduce interest rates until March.” Economists evaluated the Fed’s decision. After Powell shelved the March rate cut scenario, famous investor Jeffrey Gundlach issued a recession warning. DoubleLine Capital Founder Gundlach argued that the Fed’s higher and longer-term interest rate strategy poses a negative risk to future growth. Gundlach stated, “The Fed waiting longer at the 200 or 300 basis point real interest rate level will pose a risk to economic growth as this year progresses.” According to Gundlach, the US economic outlook does not look good and a recession is still within the realm of possibility. Bloomberg Economics economists maintained their base case for a March rate cut following the Fed’s decision. “We expect inflation to continue to soften and labor market weakness to eventually provide Fed members with enough confidence to cut in March,” economists Anna Wong, Estelle Ou and Stuart Paul wrote in a note. Goldman Sachs economists postponed their forecast for the first rate cut from March to May, while maintaining their forecast for five rate cuts this year and three in 2025.