In what was its latest decision in the long fight against inflation this year, the Central Bank of the United States decided to leave interest rates between 5.25% and 5.50%, the highest level in 22 years. but that bore fruit to cool the economy of the leading world power. Although there were no rate cuts this year, the entity did estimate at least three for 2024, while the president assured that more increases could also come, “if necessary.”
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The market was correct with the forecast and the United States Federal Reserve (FED) did not raise interest rates in its last meeting of the year. A decision that shows that the strict monetary policy that was applied throughout 2023 gave results, to the point of bringing inflation to 3.1%, in annual comparison, according to official data from November.
Which also represents the third consecutive pause, after 11 consecutive increases in the price of money, in search of discouraging consumption by Americans.
The Fed pauses raising interest rates after 11 consecutive increases
A small victory for the North American country that has just reported an inflation rate above 9% when it was established as the highest level in two decades, in interannual terms.
All of these data show a United States that also managed to exceed analysts' mid-year estimates when it was predicted that there would be a new increase in interest rates to end 2023.
The turning point came after the labor market showed strength, although it has lost intensity, consumption that remains resilient and low inflation that must still continue its downward path to 2% annually, the Fed's objective. .
“Inflation has declined over the past year, but remains above our long-term goal of 2%,” said Jerome Powell, president of the entity.
With the so-called “soft landing”, which involves a progressive decrease in inflation and constant growth that scares away recession, analysts surveyed by Reuters estimate that the rate cut could begin in June, although more options were given in July or September. For his part, the president of the Fed, Jerome Powell, must clear up doubts or continue avoiding giving an answer on this matter.
“We are aware of the risk that we hold on too long” before cutting interest rates, the Fed chair said. “We know that is a risk, and we are very focused on not making that mistake.”
The median of the Fed governors' forecasts indicates that rates would then be at 4.6% in 2024 (the equivalent of a range of 4.5% to 4.75%), to be cut by one point in 2025, up to 3.6%, and possibly reach 2.9% in 2026.
Meanwhile, on Wall Street, traders cheered the prospect of lower rates ahead. Stock prices soared and bond yields sank after Fed policymakers signaled they anticipate three interest rate cuts in 2024.
Economic health and other Fed projections
In monetary policymakers' quarterly economic forecasts, unemployment was also estimated to rise to 4.1% in 2024 from its current 3.7%, a figure that would still remain historically low.
Meanwhile, Janet Yellen, the United States Secretary of the Treasury, assured that “the market turbulence” has calmed and that there is no “significant uptick” in layoffs. Words that she gave in an interview with CNBC.
Now, in terms of economic growth, that is, the Gross Domestic Product (GDP), economists project a modest expansion of 1.4% in 2024 and 1.8% for 2025 and 1.9% in 2026. .
This weak growth next year explains the projected unemployment rate, while inflation could reach its ideal level, with a fall to 2.4% in 2024; to 2.1% in 2025 and 2% in 2026. Time will tell how accurate these forecasts are.
The Central Bank of the United States is the first of the large international banks to conclude its meeting and present its quarterly forecasts for the end of the year. Both the European Central Bank and the Bank of England are expected to decide their next moves on Thursday, December 14.
With AP, Reuters and local media
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