The U.S. Financial Authority’s interest rate policy is often described as raising interest rates as an escalator and lowering them as an elevator. However, in this case, the opposite is true, and investors expecting a rapid rate cut may be dissatisfied.
Aiming to curb rising inflation, the monetary authorities, led by Federal Reserve Chairman Jerome Powell, have raised interest rates in both 2022 and 2023 at the fastest pace in about 40 years. Now that upward price pressures have eased and the economy remains strong, authorities are poised to cut interest rates more slowly and at an erratic pace.
While most officials agree on a cautious and slow approach, some have given hints in the past few days about what the actual easing phase is likely to be. Of these, Federal Reserve Vice Chairman Jefferson mentioned the mid-1990s. At the time, the authorities lowered rates, paused for three Federal Open Market Committee (FOMC) meetings, and then cut rates again to achieve a soft landing for the economy.
“The Fed could be more patient on all sides this time,” said Lindsey Piegza, chief economist at Steful Financial. “Once tightening starts to be rolled back, the path forward may be less uniform and predictable than markets expect. There is no incentive for authorities to ease monetary policy too quickly.” .
The federal funds rate, which is the main policy interest rate, affects interest rates on mortgages, auto loans, credit cards, etc., so the pace of interest rate cuts by the authorities is important not only for consumers and businesses, but also for the US presidential election in November. have meaning. Lower interest rates may also be perceived as supporting President Biden as he seeks re-election.
However, the environment surrounding the expected future rate cut cycle is significantly different from most cases in the past in terms of fundamentals (basic conditions of the economy). Financial authorities typically cut interest rates in response to recessions, but the U.S. economy remains surprisingly resilient.
Additionally, the U.S. unemployment rate in January was 3.7%, effectively the same level as when authorities began raising interest rates in March 2022.
This strength in the U.S. economy, coupled with stronger-than-expected growth in the consumer price index (CPI) and producer price index (PPI) in January, led officials to not only cut interest rates initially, but also to reduce them further. It also reinforces the cautious approach advocated by the government.
Financial officials have also repeatedly emphasized the need to base decisions on newly released economic data. Fed Director Waller said last week that officials should be “patient, cautious and orderly.”
Fed Director Waller calls for patience when deciding when to cut interest rates – no need to rush
“We don’t necessarily think it’s necessary to cut interest rates at the FOMC meeting, where they release quarterly economic forecasts, or every two months,” said Anna Wong, chief U.S. economist at Bloomberg Economics. “It really depends on the data, but we expect a total rate cut of 1.25 percentage points over 2024, starting in May.”
“Given low unemployment and an economy that appears to be growing at a healthy pace, the fundamental principle is to do no harm,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “While the authorities have plenty of room to cut interest rates if the economy worsens, it would be even more troubling if inflation flares up again.”
Financial officials welcomed the easing of upward price pressures seen late last year, but some officials said the improvement was mainly in energy and commodity prices, with service prices remaining high. is calling for caution.
Better-than-expected employment and inflation data have shifted market expectations, with investors now expecting the first rate cut in June or July.
Economists predict that the Personal Consumption Expenditure (PCE) Composite Price Index for January, which will be released on the 29th, will accelerate compared to the previous month.
According to quarterly economic forecasts released in December last year, officials expected a median of three interest rate cuts in 2024. The latest forecast will be released after the next FOMC meeting on March 19th and 20th, but predicting the timing of a rate cut may be difficult.
Philadelphia Fed President Harker last week advocated a “steady, slow rate cut” to minimize risk and general uncertainty. But Cleveland Fed President Mester said there was no need to limit interest rate changes to the FOMC meeting, where quarterly economic forecasts are updated, “as long as we communicate well.”
Original title:Fed’s Rate Cut Path Likely to Be Slow, But Maybe Not So Steady(excerpt)
2024-02-27 11:00:00
#Feds #pace #interest #rate #cuts #slow #regular #predictable
