Federal Reserve policymakers are largely sticking to their path of interest-rate cuts — for now — after hitting a bump on the road to low and steady inflation.
The recent pickup in monthly inflation didn’t sway Fed Chair Jerome Powell’s message Wednesday that price pressures will continue to ease or that it will likely be appropriate to lower rates at some point this year. And a narrow majority of US central bank officials signaled they still expect to cut rates three times in 2024.
Speaking after the Fed’s two-day policy meeting in Washington, Powell also said it would be appropriate to slow the pace at which the Fed reduces its bond holdings “fairly soon.”
But nearly half of Fed officials would prefer two or fewer rate reductions in 2024, according to their updated economic projections, and it’s clear policymakers need more data confirming a downward inflation trend before lowering borrowing costs. They see higher underlying inflation, substantially stronger economic growth, and lower unemployment in 2024 than forecast in December.
“Powell’s basic message is that the underlying story hasn’t changed,” said Bill Dudley, a former New York Fed president and Bloomberg Opinion columnist. “‘We didn’t completely buy into how good the inflation numbers were in the second half of last year. We aren’t completely put off by the bad inflation readings in January and February.’”
Following a series of better-than-expected inflation readings in the second half of 2023, Fed officials had begun discussing the timing and pace of interest-rate reductions. But an acceleration in key price gauges at the start of the year has muddled the picture.
Powell largely shrugged off the higher inflation reports, and traders boosted the probability that the Fed would begin rate cuts in June. The S&P 500 index of US stocks closed at all-time highs.
Officials decided unanimously to leave the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest since 2001, for a fifth straight meeting. They also penciled in just three reductions in 2025, down from the four forecasts in December, based on the median projection.
The Fed’s post-meeting statement was nearly identical to January’s, maintaining the guidance that rate cuts won’t be appropriate until officials have more confidence inflation is moving sustainably toward their 2% target.
“We’re kind of right back where we’ve started,” said Omair Sharif, president of Inflation Insights LLC. “We need something to get us over the finish line on rate cuts, and that has to be at least one report that shows that inflation is going back to cooling.”
The Federal Open Market Committee did tweak its language around the labor market, noting “job gains have remained strong,” though the Fed chief said “an unexpected weakening in the labor market could also warrant a policy response.”
Bigger Picture
Powell emphasized the broader story of a gradual, sometimes bumpy path toward 2% inflation remains intact, but he said the higher inflation prints in January and February didn’t add to policymakers’ confidence. He said it didn’t dent it either.
“We’re looking for data that confirm the kind of low readings that we had last year and give us a higher degree of confidence that what we saw was really inflation moving sustainably down toward 2%,” he told reporters. “It is still likely in most people’s view that we will achieve that confidence and there will be rate cuts.”
Powell also offered fresh insights into policymakers’ discussions surrounding its balance sheet and efforts to shrink it without creating market turbulence. Some officials, including Dallas Fed President Lorie Logan, have called for an eventual slowing of the pace at which the Fed is shrinking its portfolio of assets.
“The decision to slow the pace of runoff does not mean our balance sheet will shrink, but allows us to approach that ultimate level more gradually,” he said. “In particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility of money markets experiencing stress.”
What Bloomberg Economics Says...
“The key development at the March meeting was elsewhere. Upward revisions to growth and rate forecasts beyond this year suggest more policymakers now believe the neutral interest rate has moved higher — which means it will take a higher fed funds rate to achieve a given level of restrictiveness in the economy.”
— Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou
Policymakers also slightly lifted their forecasts for where they see rates settling over the long term, boosting their median estimate to 2.6% from 2.5%, following speculation from economists that higher rates may persist in the post-pandemic environment. The change implies rates will need to stay higher for longer in the future.
Reddit will enter a new era as a publicly traded company with a market value of $6.4bn after the social media platform’s initial public offering was priced at $34 per share.
The price, announced late on Wednesday, came in at the top of the target range set by Reddit’s investment bankers as they spent the past few weeks gauging investor demand for the stock. It sets the stage for Reddit’s shares to begin trading Thursday on the New York Stock Exchange under the ticker symbol RDDT in the largest initial public offering by a social media company in years.
The platform, which is hoping to raise $748m, is set to sell 22m shares.
The company’s latest $6.4bn valuation is a drop from 2021 when it was valued at $10bn during a private funding round. Reddit’s IPO was four to five times oversubscribed before it debuted, Reuters reported, a positive sign that it would reach its desired valuation. Its largest shareholder is Advance Publications, the parent company of Condé Nast, which owns such popular magazines as The New Yorker, Vogue, and Wired.
Reddit has recorded a net loss each year since its debut in 2005, including losing $90.8m last year. But the company’s approximately 267 million weekly average users and troves of posts have turned it into one of the largest social networks and content platforms, leading investor interest, though it never evolved to the same level of global dominance as a company like Meta. The company’s IPO filing revealed that it had about 1 billion posts and more than 100,000 active subreddits.
The IPO comes as Reddit has sought to cut down on its yearly losses and find new revenue opportunities, including striking a deal with Google to let the tech giant train its artificial intelligence models on Reddit users’ posts. Reddit’s vast amounts of user-generated data have made it an attractive target for companies seeking to improve the functions of generative AI tools such as ChatGPT and Google Gemini.
Investors and Reddit executives expressed concern in the lead-up to the IPO that some of the platform’s users may attempt to negatively affect the stock price. A small portion of Reddit’s IPO was reserved for some of the site’s own users, including the unpaid moderators who oversee subreddits. The owners of these shares are not under any obligation to hold them for some time, and could immediately sell them off.
Reddit chief executive Steve Huffman’s attempts to increase revenue over the past year have at times caused backlash from the platform’s users and moderators. Thousands of the platform’s online communities, known as subreddits, shut down last year during a mass protest over Huffman’s decision to start charging for access to the site’s application programming interface. Huffman’s choice hobbled free, popular third-party tools that enhanced the experience of browsing Reddit. Some users said the protest affected the culture of the social network for the worse, though user numbers returned to normal in the aftermath.