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Federal Reserve Shifts Its Tone But Showed Little Interest In Cutting Rates
This week, officials of the US Federal Reserve shifted their tone as they inch closer to having a conversation on when it will cut interest rates. This is the conversation that the market has been having for a long time.
Various policymakers on the Federal Reserve, including six policymakers who will vote on next year?s policy, spoke up on cutting rates. They indicated that in recent days, they remained comfortable by keeping the rates steady. This is because of inflation?s downward trend and the data showing the slowing down of the economy.
According to Bloomberg,
?Though Fed officials showed little interest in discussing rate cuts, markets quickly latched onto comments by Governor Christopher Waller. An inflation hawk closely followed by Wall Street, Waller acknowledged the Fed would consider trimming rates if inflation continues to fall, in line with typical policy guidelines central bankers use.?
The chairperson of the Federal Reserve, Jerome Powell, is of the opinion that it is too soon to declare victory than to discuss the issue of cutting interest rates. The Federal Open Market Committee will forecast a much higher rate of interest in 2024, as compared to the four quarter-point cuts that the markets priced in. They will do this due to the concerns related to a potential rise in inflation.
However, Diane Swonk, the chief economist of KPMG, stated that the Federal Reserve is likely to make more cuts than they were willing to do in September. This is because Inflation came down faster than the Federal Reserve expected.
As markets now fully expect a cut in May, there are doubts about a quarter-point cut at the FOMC meeting in March. By the end of next year, the FOMC will see more than a full point of cuts.
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