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Washington DC
CNN
—
Fed officials plan to eventually cut rates this year, Wall Street thinks That first cut will come As early as March.
but investor’s Hope gradually fades.Now it’s approx. Futures show there’s a 50-50 chance that the Fed will cut rates or leave them unchanged in March.The result was lower than expected, which was about 70%. As a market just a few weeks ago I was happy to see inflation steadily approaching the Fed’s 2% target. Throughout 2023.
Economists say several developments over the past week have dampened investor optimism and now the possibility of a March rate cut may be dismissed entirely.
In a speech last week, the Fed’s most influential official, Christopher Waller, said there was no need to rush to cut interest rates.
“I believe that when the time is right to start cutting rates, we can and should do so in a systematic and prudent manner,” he said Tuesday in a virtual discussion hosted by the Brookings Institution.
“With economic activity and the labor market in good shape and inflation gradually declining to 2%, there is no reason to act as quickly or cut interest rates as we have in the past,” he said.
He echoed recent statements from other Fed officials. This means that it is unrealistic to start lowering interest rates in March.
“I think March is probably too early in my prediction for a rate cut, because I think we need to see more evidence,” Cleveland Fed President Loretta Mester, who votes on policy moves this year, recently told Bloomberg TV. Told.
She added that the latest consumer price index shows the rate of inflation. It picked up slightly in December.“This shows that there is still much work to be done, and this will require restrictive monetary policy.”
San Francisco Fed President Mary Daley echoed that sentiment in an interview with Fox Business on Friday.
“I think it’s appropriate to look ahead and ask when policy adjustments will be necessary so as not to put pressure on the economy, but it’s really premature to think that’s coming soon,” he said. Daly will also vote on this year’s interest rate decisions.
In addition to official comments, recent economic data do not bode well for a rate cut in March.
Retail sales increase 0.6% in December The Commerce Department’s month-on-month report released Wednesday beat economists’ expectations and showed Americans are still fueling the economy with spending.
Consumer spending accounts for about two-thirds of economic output, so spending figures are scrutinized to determine the health of the economy.
The job market also appears to remain strong. The number of new applications for unemployment benefits fell during the week ending January 13. Levels not seen since fall 2022The Labor Department reported on Thursday.Employer added Robust 216,000 jobs in December And the unemployment rate stabilized at a low level of 3.7%.
Stronger-than-expected economic data means there is no urgency to cut rates, as Waller suggested last week, since a sharp economic deterioration typically prompts the Fed to cut rates sooner and more aggressively. .
Markets are expecting a rate cut of twice the amount that Fed officials themselves estimated in their latest economic forecasts released in December.
“The upside surprise in jobless claims reminds financial markets that the Fed expects a stronger path for the economy and sustained inflationary pressures rather than consistent with six rate cuts per year,” Bill Adams said. ” he said. Comerica Bank’s chief economist told CNN.
There remain some risks, such as the ongoing conflict in the Middle East, that could slow the decline in inflation or cause it to flare up again.Iranian-backed militants in the Red Sea shut down one of the world’s major cities trade route Applies to most container ships that carry critical components for many consumer goods.
This could cause consumer prices to rise, and there remains a risk that geopolitical conflicts could push up energy prices.
“All of that probably won’t stop the overall downward trend in inflation, but it certainly could delay a rate cut,” Daniel Altman, chief economist at InstaWork, told CNN.
But on the other hand While a recent set of strong economic data may dash hopes for early interest rate cuts, they also show the Fed still has a good chance of pulling off a so-called soft landing. A soft landing is a rare outcome in which inflation reaches 2% without spiking. rising unemployment rate;
Fed Chairman Jerome Powell’s comments after officials make their latest interest rate decision later this month should provide further clarity on what markets expect from the central bank, but it does not mean a March rate cut is merely an assumption. It doesn’t seem to be inside.
Despite being separated by months and miles, the US presidential election was the center of attention at the annual World Economic Forum in Davos, Switzerland, last week.
Following the Iowa caucuses held by former President Donald Trump, secured a landslide victoryIn the Swiss Alps, there seem to be two main camps: those who see 2024 as just an election year, and those who see it as nothing more.
annual event This event brings together people from all over the business world and is also attractive for heads of state and government officials. So it’s no surprise that the US election has become a hot topic.
Even European Central Bank President Christine Lagarde, who tends to avoid talking about politics, could not stay silent when asked about the election.
“We’re all concerned about that,” she said Wednesday. “The United States is the world’s largest economy, the greatest national defense power, and has always been a beacon of democracy, for better and for worse.”
But JPMorgan Chase CEO Jamie Dimon said he was ambivalent about the election results.
“My company will survive and thrive either way,” he said, referring to the possibility of either President Trump or President Joe Biden winning. Many other CEOs at the WEF shared similar views, including Bank of America’s Brian Moynihan and OpenAI’s Sam Altman.
Monday: United Airlines revenue. The Bank of Japan announces the latest interest rate decisions.
Tuesday: Revenues from Netflix, 3M, General Electric, Procter & Gamble, Johnson & Johnson, Verizon, and Lockheed Martin And Halliburton.
Wednesday: Revenues from Tesla, IBM, and AT&T. Bank of Canada releases latest interest rate decisions. S&P Global releases his January Business Survey, which assesses economic activity in the U.S. manufacturing and services sectors.
Thursday: Revenues from American Airlines, Southwest Airlines, Alaska Airlines, Levi Strauss & Company, Visa, Intel, T-Mobile, Comcast, and Capital One Financial. The U.S. Department of Commerce released its first estimates of fourth-quarter gross domestic product (GDP), as well as December data on durable goods orders and new home sales. Chicago Fed releases national activity index for December. The U.S. Department of Labor reports the number of new claims for unemployment benefits for the week ending January 20th. The European Central Bank announces its latest interest rate decisions.
Friday: Revenues from American Express, Colgate-Palmolive, and Booz Allen Hamilton. The U.S. Department of Commerce released December statistics on household spending, income, and the Fed’s recommended inflation measure. The National Association of Realtors reports the number of home sales under contract for December.
– CNN’s Elisabeth Buchwald contributed to this report.