2024-04-03 16:23:00
What should we expect this year from the American Federal Reserve? According to a manager of the monetary institution, the Fed might ultimately settle for just one rate cut in 2024. And this, while the markets are hoping for two or three. And for good reason, during their last meeting, on March 21, the members of the Fed committee (FOMC) announced that they were counting on three rate cuts of 0.25 percentage points this year. A figure down compared to the previous meeting in December at the end of which they had mentioned three or four cuts in order to reduce rates to 4.6% at the end of 2024. As a reminder, they are still in a range from 5.25 to 5.50%.
Questioned on the CNBC channel, the president of the Atlanta Fed, Raphael Bostic, therefore further darkened the picture. “The good performance of the economy in 2023 led me to think that we might move sooner. But inflation is now on a more uneven path and I think we’ll have to wait and see how things develop.”he explained.
According to him, “We should expect inflation to slow much more slowly than many expected and we will have to be much more patient”. Especially since the PCE price index, the one favored by the Fed for the conduct of its monetary policy, started to rise once more last February, going from 2.4% over one year in January to 2.5% per month. following. Inflation nevertheless slowed to 0.3% over one month, compared to 0.4% the previous month.
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A decrease “in the last quarter”
Under these conditions, the first, and therefore potentially only, rate cut for 2023 might only take place at “the end of the year, in the last quarter, according to what the data shows”, concluded the Fed official. For their part, the markets anticipate a first decline during the meeting scheduled for mid-June.
And to insist: “some of the secondary data in the inflation figures has led me to be a little concerned that things might move even more slowly” than hoped. “Inflation has not changed much compared to where we were at the end of 2023”added Raphael Bostic, “we must continue to monitor this”.
The next FOMC meeting, scheduled for April 30 and May 1, should once once more end with a status quo, as the markets anticipate, according to the CME aggregator FedWatch.
Towards rates of 3% in the long term
As for seeing rates return to their pre-inflation level, that is to say between 0 and 2%… This is a scenario which seems well and truly excluded. Indeed, according to the President of the Cleveland Fed, Loretta Mester, they might settle in the long term around 3%, which would place them at a level much higher than that observed before the pandemic. This is even a revision of the previous forecast from this member of the Fed’s Monetary Policy Committee, which until now envisaged a long-term rate of 2.5%.
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“I have reassessed my forecast to take into account the continued strength of the economy despite still high interest rates and a potential equilibrium rate envisaged above by the models”, she justified Tuesday during a conference in Cleveland. In economic theory, the equilibrium interest rate is that which allows supply to best meet demand, without excess in one direction or the other.
Loretta Mester nevertheless recalled that there is “different risks”notably “geopolitical tensions, the slowdown in Chinese growth or a potential deterioration of the real estate market”which might weigh on the American economy and encourage the central bank to support growth by lowering its rates.
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