Fed Chairman Jerome Powell stressed that the central bank would remain cautious and operate in a "risk management mode," making progress on both sides of its dual mandate. While Powell was upbeat on inflation, he stressed that the Fed would need to watch for further signs of deflation before starting a rate-cutting cycle. The Fed's primary goal is not a 3-month or 6-month decline in inflation, but a 12-month decline.

Powell argued that the inflation data seen so far has been "good enough," but that the Fed needs more evidence of a sustained deflationary trend to justify a rate cut. Powell acknowledged that starting the rate cut too late or too soon would bring double-sided risks. However, he said a rate cut was inevitable, although the timing depended on changes in economic indicators and inflationary pressures.

For the Fed, maintaining credibility is crucial, especially in monetary policy decisions. The Fed's goal is to avoid premature adjustments that could have unintended consequences, such as renewed inflationary pressures. Easing monetary policy too early and too aggressively could destabilize the economy and undermine public trust in the Fed's ability to manage inflation.

But from a market trend perspective, the recent release of favorable consumer confidence data and a sharp decline in key measures of consumer inflation expectations have removed two potential risks of runaway price growth - namely, a wage-price spiral and unanchored expectations. So why delay lowering policy limits?

In terms of market sentiment, the probability of a rate cut in March remains strong, at close to 50%. Given this, the Fed's recent policy event could be seen as a placeholder meeting, giving officials time to consider the timing of any rate move. Investors are especially focused on February 13, as the release of the U.S. consumer price Index (CPI) could be a decisive factor in shaping expectations for a rate cut in March.