2023-09-21 19:32:45
The Federal Reserve of the United States (Fed) met this Wednesday, September 20, to define how the monetary policy of that country will continue. In it, it decided to maintain the reference interest rate at the level of 5.50% per year. In this way, the entity directed by Jerome Powell remained in line with market analysts’ forecasts without bringing any major surprise.
It should be noted that, despite having kept the interest rate unchangedCurrently, interest rates are at the highest level in 22 years.
James Bullard: “The Federal Reserve may need to raise interest rates even further”
Neverthelessthe US Central Bank indicated that it still expects one more increase before the end of the year and fewer cuts than indicated above next year. That final increase, if materialized, would be sufficient for this cycle of restrictive monetary policy. If the Federal Reserve moves forward with the move, it would make a full dozen increases since policy tightening began in March 2022.
While it was expected that no increase would occur, there was some uncertainty regarding where the Federal Open Market Committee (FOMC) would be headed. Judging from the published documents, the bias appears aim for a tight policy and high interest rate approach for longer.
“We are in a position to proceed carefully in determining the extent of further tightening of monetary policy,” Federal Reserve Chairman Jerome Powell said during a news conference.
What did the FED “dot plot” show us?
Projections released on the Federal Reserve’s dot chart showed the likelihood of one more increase this year and then two cuts in 2024, two fewer than indicated during the last update in June. That would put the benchmark interest rate at around 5.1% annually for next year.
Inflation remains in the sights of the Federal Reserve
Despite the slowdown seen in this indicator throughout 2023, inflation is still above the 2% target annual Federal Reserve. At the same time, with an economy that remains solid, there is some expectation of a potential rebound in price increases. Against this, committee members supported the recent positive inflation data, but are in no rush to declare victory on inflation just yet.
Gundlach analyzed the FED’s decision on rates
The Federal Reserve now expects the consumer spending price index (PCE) average 3.7% this year, below a previous forecast of 3.9% seen in June. By 2024, inflation is estimated to slow to 2.6%, unchanged from the previous forecast, and will fall further to 2.3% by 2025, slightly higher than previous projections of 2.2%, before of finally falling to the 2% target in 2026.
What impact did the FED’s decision have on the market?
After learning of the decision of the entity that regulates the US monetary system, the market timidly reacted downwards, but without presenting much volatility, because the most expected scenario by the majority of Wall Street analysts occurred.
For its part, one hour following the closing of the session, the S&P500 index fell a slight 0.15%, the technological Nasdaq 100 fell 0.42%, while, for its part, the industrial Dow Jones registered a rise of 0.38%.
Going forward, we understand that the recent market correction and a scenario that is in line with expectationsmay provide a good entry point for US stocks that might benefit from an end to the interest rate hike cycle.. In this sense, the Nasdaq technology stock index that can be traded through the QQQ ETF is one of two assets to consider for the latter part of the year.
* Head of Research en IOL invertironline.
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