-U03508244087YnC-1440x752@IlSole24Ore-Web.JPG?r=1170x507 "Fed, because the rate cut is moving away")
Postponed. At a later date. There are no longer any expectations, lively just a few weeks ago, regarding Federal Reserve rate cuts expected until recently starting from June, if not from May. The much feared rise in inflation has occurred, while the labor market is only slowly approaching the levels desired by US monetary policy. However, the meeting of the Monetary Policy Committee (FOMC) on May 1st will not be a non-event, even if it will be necessary to wait for the meeting on June 12th to have new projections and new intentions on future rates. It will be very important to understand how the Fed judges the evolution of prices and growth, the two news of recent weeks. Also because they do not deny, but delay, reductions in the official cost of credit this year. When?
Is inflation rearing its head once more?
The turning point in expectations came with the March data on PCE inflation, the Federal Reserve’s reference measure. The overall index rose by 2.7% annually, once morest 2.5% in February, and the core index by 2.8%, like the previous month. It is, at least, a pause in the downward trend which had already encountered a – predictable – slowdown. The more timely CPI index had already indicated a 3.5% price increase for March, from 3.2% in February, with a stable core index at 3.8%.
Expectations slightly rising
Above all, inflation expectations increased slightly. If at the previous monetary policy meeting, on March 20, they were around 2.2-2.3%, now they have all risen to 2.4-2.45%. Not much, but enough to set off alarm bells. The Fed probably does not fear a recovery in inflation: the conditions are lacking. However, you may be concerned that it will stabilize at a higher level than the goal.
Increasingly accommodating financial conditions
Yields recorded the novelty. They continued their decline – a reduction, nothing more – in the very short term, but slowly began to rise once more in the medium to long term. The effective exchange rate, however, continued to move “sideways”, remaining substantially stable. However, the Chicago Fed’s expectations index, which monitors and summarizes the entire transmission chain, continues to decline – for more than a year – as if the orientation of monetary policy were, in fact, more expansionary and not less expansive. The Wilshire stock market index continues to rise; such as house prices (these at increasingly faster annual rates). Even the monetary base and the money supply (M1), for what they count – they have an above all signaling value – are rising.
GDP returns to trend
Growth, however, came to a halt in the first quarter of 2024: +1.6% annualized, which corresponds to a +0.4% quarterly. and even loans to non-financial companies – much less important in the US than in Europe – continue their very slow decline. These are not yet such paces as to give rise to fears of a recession: rather, the previous GDP data (3.4% in the fourth quarter of 2023, 4.9% in the third quarter) were partly anomalous: economic activity seems to have returned to the trend of medium-long term.
#Fed #rate #cut #moving
2024-05-02 03:57:36
