2023-12-13 22:54:07
As expected, the US Federal Reserve did not change its key interest rates on Wednesday, but did not yet give the all-clear in the fight against inflation. “Inflation has eased over the year but remains elevated,” said the Federal Reserve’s statement, released Wednesday after central bankers’ two-day policy meeting. The wording differs from previous statements and shows that the Fed is seeing real progress in curbing inflation for the first time.
Fed Chairman Jerome Powell emphasized that, according to central bankers’ assessment, the peak of monetary policy tightening has been reached or at least very close. However, he added that the Fed would not hesitate to intervene if new inflationary trends emerged. He emphasized that progress had been achieved without the situation on the labor market having deteriorated significantly. This is good news. He always assumed that it was possible, although not certain, to curb inflation without major job losses.
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The official inflation indicators had recently been pointing downwards. The cost of living price index (CPI) in November was 4 percent higher than in the same month a year ago, with fluctuating energy and food prices taken into account. The personal consumption expenditure index, which the Fed pays particular attention to when it comes to inflation, was lower; according to Powell, it was 2.5 percent for the past twelve months.
With the decision, which the central bankers made unanimously, the key interest rate remains in the range between 5.25 and 5.5 percent, the highest value in 21 years. Interest rate cuts are slowly being considered. This is clearly an issue that is being debated, Powell said. However, the Fed does not yet see the battle against inflation as won. There are two main reasons for this. On the one hand, this is the surprising robustness of the labor market with an unemployment rate of 3.7 percent. The fact that wage levels remain high in this environment still suggests higher inflationary pressure. However, recent layoff reports from Spotify or EY, for example, indicate that a slowdown could be imminent. On the other hand, although the prices of goods are falling, the prices of services are falling less.
Relaxation on the labor market is expected
Nevertheless, the Fed also notes that the American economy is no longer running as hotly as it was in the third quarter: Current indicators suggest that economic growth has slowed, according to the press release. Nevertheless, it currently remains high at around 2.5 percent, Powell made clear. However, the Fed expects the economy to only grow by 1.4 percent next year. This emerges from the projections that the Fed published. In it, the central bankers give their estimates on the course of economic growth, inflation, unemployment and key interest rates. On average, they see a key interest rate of 4.6 percent as appropriate. This implies two interest rate cuts. In September, the central bankers had set the appropriate key interest rate at 5.1 percent. According to the projections, the labor market will remain robust with an unemployment rate of 4.1 percent, but is increasingly normalizing, making it easier for the central bank to combat inflation.
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