A steady stream of encouraging news makes it all but certain that the Fed will keep interest rates on hold heading into its final policy meeting of the year, when officials meet on Tuesday and Wednesday. Since they began raising interest rates in the spring of 2022 as inflation soared, central bankers have often been in catch-up mode, scrambling to raise borrowing costs that would significantly slow the economy. But officials have been charting a different path since late summer. The idea is to pause interest rate hikes and wait to see how the economy reacts to everything. Done so far.
The big question now is whether the Fed has actually ended its aggressive rate hike campaign and whether the central bank will cut rates in 2024. The market is eager for some clues, and one could come during the tenure of Federal Reserve Chairman Jerome H. Kennedy. Powell’s press conference Wednesday afternoon.
“I can’t imagine the Fed seeing anything on this issue.” [inflation] This release changes my expectations that they will support it,” said Wendy Edelberg, director of the Hamilton Project and senior fellow in economic studies at the Brookings Institution.
Before announcing interest rate cuts, Mr. Edelberg told central bank officials, how they The Fed is comfortable lowering borrowing costs, especially if inflation is below the Fed’s 2% target. Edelberg warns that instead of offering a clear timeline this week, Powell will likely “look good, but we’re waiting for irrefutable evidence that the momentum is still there.” He said it would be.
The overall inflation picture will become a little clearer Tuesday morning when the Bureau of Labor Statistics releases its latest inflation data from November. Economists estimate that prices rose about 3% in the month from a year earlier. Approximately 0.1% compared to October. Much of the increase appears to be due to rents, which, although starting to subside, still account for a large portion of overall inflation.
Considerable progress has been made since the Consumer Price Index peaked at 9.1% in June 2022. Gas and energy prices, which soared after Russia’s invasion of Ukraine, have cooled. Supply chains have cleared backlogs and kept prices down for everything. for car parts Aero bike. Moreover, a very successful year for the labor market ended the labor shortage and helped keep wage growth at more normal levels.
But the Fed is still a step away from declaring victory. Leaders have consistently said any threat, including a war overseas or a slowing Chinese economy, could cause U.S. inflation to rise again. Officials have warned that failure to complete the work could further jeopardize the economy in the future.
Moreover, no one is completely sure what it will take to eliminate sources of inflation that do not come from gas prices or supply chain disruptions. Officials are expecting some relief on the housing front, with about 1 million apartment rental housing units scheduled to come into operation from the second half of this year to next year. Rising interest rates are typically expected to dampen demand for home purchases and lower home prices as mortgages become more expensive.
However, as the post-pandemic recovery unfolds, large parts of the economy are not responding to high interest rates as Econ 101 suggests. The Fed’s benchmark interest rate, known as the federal funds rate, is between 5.25% and 5.5%, the highest level in 22 years.
Economists widely predicted that the sharp rise in interest rates would cause a recession. Instead, the main pillars of the economy are thriving.
Importantly, consumer spending continues to drive the economy forward. Employers are still hiring, and the unemployment rate remains high at 3.7%. And in recent months, Chairman Powell has said that high borrowing costs are less likely to deter homeowners who bought their homes when mortgage rates were still low, and businesses that have paid down their debt and are now not experiencing financial stress. I have pointed out groups that have not.
“This is actually a much stronger demand story,” Powell said in October. “There may be some ways the economy is less sensitive to interest rates. It’s hard to know exactly.”