Washington DC
CNN
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The US Federal Reserve is expected to announce on Wednesday that it will keep its key interest rates unchanged for the third time in a row at the highest level in 22 years. Central bank officials are also expected to release new economic forecasts, with inflation likely to cool more quickly than previously expected and further rate cuts in the next year or more.
The Fed’s post-meeting statement could also signal that the Fed is not inclined to raise rates again, especially by dropping the usual “further policy tightening” language, but that change could come at a future meeting. There is a possibility that it will be done.
Fed Chair Jerome Powell expected to be showered with cold water Possibility of interest rate cuts He reiterated that further rate hikes remain on the table, saying they will begin in just a few months. He tried to do so earlier this month.
“I came here so quickly, [Fed] “We are proceeding cautiously because the balance between the risk of under-tightening and over-tightening is becoming more balanced,” Powell said. During the discussion in Atlanta. “It would be premature to confidently conclude that we have achieved a sufficiently restrictive stance or to speculate on when policy will be eased.”
However, further rate hikes will not be reflected in futures. Stocks rose after Chairman Powell’s hawkish comments in Atlanta.In fact, investors have already In anticipation of Fed interest rate cuts It remains unclear when the rate cuts will begin, although sometime next year. Markets are currently pricing in a roughly 40% chance of the first rate cut in March.
There are two main reasons why the Fed lowers the key federal funds rate. There is no reason to continue raising interest rates to “restrictive” levels if it is clear that unemployment is rising due to a weak economy, or that inflation is simply under control. In the latter scenario, inflation slows and interest rates remain high, meaning that inflation-adjusted “real” interest rates rise and unnecessarily constrain the economy.
Fed officials’ latest economic forecasts, released in September, indicated they would begin lowering rates sometime next year. However, it remains unclear when interest rate cuts will finally begin and how many times the Fed will cut rates in 2024. Economists have mixed expectations regarding rate cuts.
“The Fed is increasingly comfortable that the economy, employment and inflation are all moving in the right direction, consistent with the current federal funds rate,” Mark Zandi, chief economist at Moody’s Analytics, told CNN. I’m hugging you,” he said.
“However, the futures market is predicting a significant rate cut starting next March. This is probably too aggressive from the Fed’s perspective, so Chairman Powell is pushing the market to see a less aggressive rate cut next year. “We may try to go back to that,” he said.
No one knows whether the economic downturn and the defeat of inflation will lead to rate cuts next year.
And with markets already sending clear signals about a rate cut, Fed officials could discuss it at their ongoing policy meeting, which began Tuesday.
KPMG Chief Economist Diane Swonk told CNN: “Mr. Powell will be asked whether he discussed cutting rates at this meeting. That will be one of his most difficult decisions.” .
“We’ll see that in the minutes, but if that’s the case, he’ll have to admit. He’s pretty good at corralling the cats in advance, so my guess is that the rate cut discussion will be postponed until January. I think he’s saying he will,” he added.
And it’s not just Mr. Powell playing around with the debate about rate cuts.
San Francisco Fed President Mary Daly told a German newspaper last month that “at this point we are not thinking about cutting rates at all.” “We’re thinking about whether we’ve tightened the system enough and put enough restrictions in place to restore price stability,” she said.
Inflation remains a thorny problem for the Fed.
price increase Although there was a slight slowdown in November, That’s as underlying inflationary pressures continue, according to the latest consumer price index released by the Labor Department on Tuesday.
The CPI rose 3.1% in November from a year earlier, slightly lower than the 3.2% rise in October, but still above the Fed’s 2% target. Meanwhile, the core index, which excludes volatile food and energy prices, rose 4% in the 12 months to November, the same as in October.
Still, the latest CPI reflects a significant improvement from when it hit a 40-year high in June 2022. The Fed’s recommended inflation measure has shown similar steady progress over the past year.
The last mile of the Fed’s fight against inflation could be the toughest and will likely require further cooling of the economy, something Powell and other Fed officials have said as well.
Economic growth has already slowed dramatically From the blistering pace of the third quarter.
The Atlanta Fed now expects GDP to grow at an annual rate of 1.2% in the fourth quarter, a sharp decline from the 5.2% rate in the third quarter.
The job market has also slowed significantly, at least compared to the strong years of 2021 and 2022. 199,000 jobs in November In the same month, the unemployment rate gradually decreased to 3.7%. This exceeds the minimum number of monthly job increases (between 70,000 and 100,000) required to keep up with population growth.
Overall, the U.S. economy remains resilient and has so far avoided recession, with the Fed instead able to achieve a soft landing, a situation in which inflation slows without a sharp rise in unemployment. Expectations are even higher.
However, a soft landing is still not guaranteed.
“If you look at three-month or six-month averages, we see evidence that the economy has already achieved a real soft landing,” Gregory Daco, chief economist at EY Parthenon, told CNN. “The key question now is whether we have a long enough stable runway until 2024 to avoid the long-feared recession.”