USA, the Fed leaves rates unchanged But plans three cuts in 2024 – WWN

The Federal Reserve leaves American interest rates unchanged, for the third time in a row, at 5.25-5.5%, a range unchanged since July. It is the highest level for 22 years, but the central bank signals the probability of three rate cuts next year, for a total of 75 basis points, with the cost of money at 4.6% at the end of 2024. And Wall Street immediately celebrated, reaching new records: The Dow Jones gained 1.4%, the S&P index 1.37% and the Nasdaq 1.38%.

Caution prevents Fed Chairman Jerome Powell from declaring “mission accomplished», but during the press conference at the end of the monetary policy meeting the lawyer-banker admits that the rate rises are «probably over». He explains: «Inflation has eased in the last year, but remains higher than ours target of 2% in the long term”, and thus leaves the door open to “possible new increases” in rates, if they are appropriated by economic developments. “They are not probable, but not excluded either”.

The economy is growing, the job market is robust, inflation is making progress, but it is too early to declare victory, according to Powell. Why “inflation is falling, and that’s good news, but prices aren’t falling”, states clarifying that “wages are increasing more than inflation decreases”, which fell to 3.1% in November from 3.2% in October. What will be the signal to push the Fed to cut rates?, is asked in the press conference. “Probably a recession,” says the Fed president. It is not expected, but not ruled out next year either. According to the new estimates, “core” inflation, the figure preferred by the Fed which excludes volatile energy and food prices, is indicated at 2.4% at the end of 2024 from the 2.6% forecast in September. The economy will also slow down next year, but the US should avoid a recession: GDP will grow by 1.4% in 2024 (with unemployment increasing from the current 3.7% to 4.1%) and by 1.8% in 2025.

The Fed initiated monetary tightening late, considering inflation a transitory phenomenon. Now the danger is waiting too long for easing. There is “always a risk” of acting too late, Powell agrees, recognizing that the restrictive policy must be interrupted “well before inflation reaches 2%”, otherwise the limit will be exceeded. But he prefers not to reveal what the key value is. Also because “this is not classic demand-driven inflation”, rather it is a combination of very robust demand and restriction on the supply side.

Thursday it’s the ECB’s turn. If the market expects a new pause in monetary tightening after that of Octoberall attention is focused on the words of President Christine Lagarde, to understand the timing of a rate cut which could occur in Europe even before the United States.

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