Progress on inflation

Progress on inflation

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  • The US Federal Reserve is anticipated to maintain interest rates at a 22-year high for the third consecutive meeting this week, primarily in response to persistent inflationary pressures. The financial markets largely expect a pause, prompting discussions among traders and analysts about the timing and pace of potential interest rate cuts in the future. While it's widely accepted that there won't be a rate hike, uncertainties persist regarding the Fed's policy outlook for the coming year.

  • The Fed, focused on addressing both inflation and unemployment, has emphasized the possibility of another rate hike if deemed necessary. This approach contrasts with some other central banks, such as the European Central Bank, where policymakers lean towards ending rate hikes amid a notable decline in inflation. The Fed's strategy is seen as a "battle for optionality," maintaining flexibility while acknowledging the positive economic indicators, including low unemployment, robust job creation, economic growth, and declining inflation.

Why it matters

Recent economic data, including a 3.2% annual inflation rate, indicate progress in meeting the Fed's dual mandate. However, the central bank's stance remains cautious, and the upcoming decision will provide insights into its future trajectory. While expectations of a December pause are high, there's considerable uncertainty among traders and analysts regarding the timing and extent of future interest rate cuts, with projections ranging from Deutsche Bank's estimate of 1.75 percentage points in 2024 to Barclays' more conservative outlook of waiting until December 2024 for any adjustments.

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