Jay Powell, chair of the United States Federal Reserve, has recently indicated that the Reserve is nearing the point where they feel confident enough to begin reducing interest rates. This has sparked positive responses and hope that over the following months, the costs of borrowing may reduce.
Mr Powell stated during a meeting with US senators last Thursday that the Federal Open Market Committee is currently poised well in terms of monetary policy, whilst they anticipate evidence that nearly two years of raised rates have successfully mellowed inflation.
“We are awaiting further assurance that the inflation rate is on a steady path towards 2%”, stated Powell, referencing the official inflation target of the Reserve. He continued, “Once we are confident enough, and we are inching closer to that point, it will be necessary to lessen the level of restriction to avoid initiating an economic downturn.”
These recent sentiments expressed by Powell have boosted the anticipation that the Federal Reserve may finally be planning to alleviate the monetary policy, after maintaining rates at a record high for 23 years, which ranged between 5.25% and 5.50%. This was a part of their effort to suppress price pressures that burgeoned as the US economy began to recover from the global pandemic.
Investors are presently forecasting a quarter-point reduction by July, with many optimistic that the cut may happen in June. The primary inflation metric utilised by the Federal Reserve, the personal consumption expenditures prices index, currently stands at 2.4% contrasted to its 2022 peak at 7%.
Powell’s statements in Washington came mere hours after the president of the European Central Bank, Christine Lagarde, hinted at a potential reduction in interest rates starting from June.
Both stocks and bonds saw an uplift on Thursday, with the S&P 500 increasing by 1.2% and two-year treasury yields fluctuating around three-week lows at 4.52%.
At the next meeting of the Federal Reserve’s policymakers set for 20th March, the FOMC is widely assumed to maintain interest rates. The Reserve will also release their new “dot plot”, providing detailed expectations for how many times they assume the bank will lower rates in 2024.
In the latest update, the European Central Bank (ECB) has yet again revised its growth projections for the year, marking the fourth successive downgrade. The Eurozone economy, according to new forecasts, is set to achieve a growth of 0.6 per cent compared to initially anticipated 0.8 per cent. Concurrently, the expectation from many financial experts is that the US Federal Reserve will improve its Gross Domestic Product (GDP) forecasts in the upcoming March vote. This information comes courtesy of The Financial Times.
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