US Federal Reserve (Fed) continues preparations maintain interest rates September monetary meetingHowever, according to analysts, the increases may continue in December. Markets are currently pricing in a pause in interest rate hikes. These range from 5.25% to 5.5%.They are waiting for new economic projections to predict the next moves of the institution chaired by Jerome Powell. For investors, halting the hikes would be a step consistent with the Fed shifting to a slower, more cautious pace in line with recent decisions by its European counterpart. The European Central Bank increased interest rates by another 0.25 points last week, but signaled that this could be the end of the increases.
Powell’s Interest rate hike in 10 consecutive meetingsIt is always between a quarter and three-quarters of a point to combat worsening US inflation. Following the collapse of Silicon Valley Bank and Signature Bank in June of this year, the Fed paused to avoid complicating the delicate situation of midsize banks. Quarterly economic forecasts accompanying this decision showed that 12 of 18 policymakers still expect two new interest rate hikes of a quarter point each by the end of the year. One of these increases took place at the July meeting.
Analysts hope lack of updated economic news will prompt policymakers to take action Rule out a second rate hike in September and postpone it until the end of the year. The reason this happens, according to Michael Feroli, an economist at JP Morgan, is because “the participants on the committee don’t want to disrupt what’s working.” While it’s true that the U.S. economy has shown more resilience than expected each month, “recent economic data points to a continuing decline in inflation, particularly in services, and an easing of labor market tensions,” which is a key indicator for the Fed, says Franck Dixmier, global investment director at Allianz Global Investors Fixed Income.
Economy flexibility
HE The last US inflation data recorded in August was 3.7%This figure, which is one-tenth more than expected, contrasts with the slowdown in price increases in recent months. On an annual basis, this is the second month in which prices have recovered on an annual basis after more than a year of declines. One of the indicators that the Central Bank trusts the most is the services sector PMI index, which started to decline in May this year and is in danger of continuing to decline.
Beyond the deterioration in consumption and economic activity, markets remain alert due to the global crisis. US debt exceeds 123% of GDPand with a fiscal deficit that stands at 5% of GDP to date. “The latest data should leave the Fed encouraged by the ongoing disinflation, but concerned about inflation reaccelerating due to strong activity,” said Michael Gapen, an economist at Bank of America, and others, noting that “risks are biased.” Rates are predicted to remain higher than expected until 2024.
Juhi Dhawan, macroeconomic strategist at Wellington Management, believes that with this macroeconomic data, if the Fed keeps interest rates this high for an extended period of time to reduce underlying inflation, it “runs the risk of increasing fiscal pressure and creating instability in the US sovereign market.” At the same time, higher real yields “also put pressure on equity valuations and imply lower earnings growth going forward.” Therefore markets The first interest rate cut is expected in July 2024. We may see only a three-quarter point cut next year, according to Bank of America analysts, while the long-term neutral interest rate forecast has risen slightly. This would mean a slightly restrictive monetary policy to impose the same level of restriction on companies and families over time.
Interest rate increase in Europe
The European Central Bank signaled that this might happen with its last interest rate increase. The last time the price of money increased was: “Based on its current assessment, the Governing Council considers the ECB’s official interest rates reached levels HE, well-groomed for a while long enoughIt will significantly contribute to his rapid recovery. targeted inflation. Future decisions of the Governing Council will ensure that the ECB’s official interest rates remain at the same level. sufficiently restrictive levels as long as necessary. The board will continue to implement this approach data dependent to determine restriction level and duration “suitable.”
“we don’t say we are now at the top (of the rate hike)”, Lagarde declared. However, she admitted that she was aware of this. market focus We will now move from speculation about the possibility of new increases to speculation about new increases. how much will be in current level. In fact, he wanted to flatly deny that the government council had begun discussing the period during which it would be necessary to maintain interest rates. denied It was even mentioned possibility to download them later (some analysts think a cut is possible in the second half of 2024).
Additionally, Lagarde announced that the decision to increase interest rates was taken this Thursday. Even unanimity has not been achieved yet.. “Some governors would prefer it” take a break and save your future decisions for a time when possible more precision as a result of the passage of time. But something happened solid majority “The situation of the governors who participated in the approved decision,” he explained.