Fed Chair Jerome Powell announced that the FOMC has left the fed funds target range unchanged at 4.25% to 4.5%.
Powell described the labor market as “pretty stable and broadly in balance,” with a low hiring rate and an equally low quit rate.
The key question for investors in the post-announcement news conference. Axios: “Was there any discussion on the timeline for ending the QT program?”
Powell responded that their indicators suggest that reserves are still abundant, and the Fed would continue with QT until that changes.
Commercial bank reserves at the Fed reached $3.33 trillion on January 22.
However, the decline in bank reserves is expected to accelerate as the rundown in overnight reverse repo (RRP) liabilities nears an end. The reduction in RRP caused money market funds to invest more than $2 trillion in T-Bills over the past two years, effectively offsetting the withdrawal of liquidity via QT.
Financial market conditions currently signal abundant liquidity, with the Chicago Fed Index falling to -0.65. However, that could reverse as the Fed persists with its rundown of securities on its balance sheet.
We will continue with weekly charts for the present as they help to keep daily volatility in perspective.
The 10-year Treasury yield (TNX) below has found support at 4.5%, and respect would signal an advance to 5.0%.
The S&P 500 is testing resistance at 6100. Selling pressure is secondary, and breakout will likely offer a target of 6400.
Dollar & Gold
The Dollar Index (DXY) found short-term support at 107. Recovery above 108 would indicate another test of 110. Broad imposition of tariffs would likely signal the continuation of the long-term uptrend.
Gold is testing resistance at $2,800 per ounce after a bullish shallow correction. Breakout would offer a target of $3,000.
Silver remains bearish, testing support at $30, with the trend direction uncertain until a breakout above $32.
Conclusion
The Fed is likely to keep rate cuts to a minimum for as long as the labor market remains “in balance.”
Liquidity is likely to have a greater impact on financial markets, with an expected contraction in 2025, which is bearish for stocks and bonds.