The Fed Is Taking It Slow. But the Markets Want More.

U.S. economic reports have been sparkling. The economy appears to be booming, the labor market looks strong and inflation seems to be on the decline.

Yet this seemingly propitious combination has locked the Federal Reserve into inaction. At its policymaking meeting this week, the Fed decided to do precisely nothing. It held the main policy rate, known as the federal funds rate, steady at about 5.3 percent, where it has stood since August.

In a statement on Wednesday after the two-day session, the Fed said it would not cut interest rates “until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” And during a news conference, Jerome H. Powell, the Fed chair, emphasized that the Fed was proceeding cautiously and still waiting for “a true signal” that it was time to act.

But with inflation waning, the markets want much more.

Market Desires

The stock market is positively aching for a cut in interest rates. In past cycles, when the Fed began easing interest rates, risk seekers often saw that as an invitation to start partying. The S&P 500 hit a record in January, but stocks haven’t risen as sharply as they probably would have if a rate-easing cycle were already underway.

The S&P 500 fell 1.6 percent on Wednesday, with a decline fueled by Mr. Powell’s comments during the news conference, after he said, “I don’t think it’s likely” that the Fed will cut rates in March.

Expectations of rate cuts have waxed and waned over the past several months. After the Fed’s previous meeting in December, in which it signaled that rate cuts were likely sometime in 2024, the futures market began to count on the start of those rate cuts being at the Fed’s next meeting, in March.