The overall judgment set out in the recently released minutes of the meeting of the Federal Open Market Committee, held on Oct 31 and Nov 1, is that the employment, inflation and economic growth data of the United States now all support the decision that there is no need for new interest rate cuts.
The US’ GDP growth rate was 4.9 percent in the third quarter of this year, 2.1 percent in the second quarter, and 2.2 percent in the first quarter. In October this year, the seasonally adjusted unemployment rate in the US was 3.9 percent, only slightly up from 3.6 percent at the beginning of the year. The year-on-year growth rate of the US consumer price index in October was 3.2 percent, the rate for the previous month was 3.7 percent, with the peak 5.0 percent in March. The core CPI growth rate in October was 4.0 percent, a decrease of 0.1 percentage points from the previous value. From the data, it can be judged that US inflation is gradually improving.
Considering the Federal Reserve Board’s reliance on the data for its decision-making process, this has led to market bets that the Fed will not cut interest rates on a large scale until next year. As for the next interest rate cut cycle, the market generally expects that it may start in May-June next year.
Although the data support the Fed’s judgment, we still need to focus on the changing trend of the US’ inflation. While continuing to show signs of slowing, survey indicators of consumers’ short-term inflation expectations remain above pre-pandemic levels. As for its judgment on the inflation situation, the Fed estimates that the inflation level will be close to 3 percent by the end of this year, and the core Personal Consumption Expenditures (PCE) Price Index will be around 3.5 percent. As demand and supply in product and labor markets converge, inflation is expected to continue to decline in the coming years, with the US’ overall price level and core PCE Price Index eventually approaching the 2 percent anchor target by 2026.
But the difficulty lies in the complexity of the inflation situation and the high uncertainty of the economic outlook. Therefore, the latest minutes of the Federal Reserve’s monetary policy meeting specifically emphasize that decisions at each meeting will continue to be based on all information received, particularly changes in employment, inflation and economic trends in the US.
-21st Century Business Herald
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