No rate of interest hikes were expected from the Federal Reserve (Fed) meeting on Wednesday and the central bank met expectations. However, it did predict a rate cut to five.1 percent before the top of the 12 months.
No indication was given as to when the one rate cut might occur. However, the Fed will meet 4 more times this 12 months – in July, September, November and December.
Currently, rates of interest are within the range of 5.25 to five.5This is a 23-year high that has lasted for nearly a 12 months.
Connecting the dots
The Fed’s planned rate of interest cut relies on information from the central bank’s scatter chart.
The dot plot is an indicator of how the 19 top Fed policymakers view rates of interest over the following few years. This is very important because these policymakers are those who resolve whether to chop or raise rates of interest.
You might think that the quarterly dot chart is indicator of where rates of interest are heading. However, it will not be very accurate. The predictions are anonymous, so there is no such thing as a accountability. And a change by one or two people can throw things completely out of balance.
The Fed forecast assumes that rate of interest cuts will increase next 12 months. A complete of 4 rate of interest cuts are expected. At the top of last 12 months, nevertheless, the bank was still expecting 4 rate of interest cuts this 12 months.
Slow and regular
The Fed maintained its cautious approach to rates of interest, although data released earlier within the day suggested a slowdown in inflation.
In a press conference following the meeting, Powell described the Fed’s approach as “conservative,” but he also struck a hopeful tone, saying, “We welcome today’s reading and look forward to more like it.”
Several Central banks in other countries have recently cut rates of interestHowever, the Fed was hesitant to follow suit.
Powell has repeatedly stressed that the Fed’s rate of interest decisions can be based solely on data. In this regard, there was positive inflation data earlier within the day.
CPI unchanged
The Bureau of Labor Statistics released the May Consumer Price Index (CPI) Wednesday morning, unchanged from April. The Consumer Price Index (CPI) examines the prices of quite a lot of goods and services to measure inflation.
The biggest price drivers within the May report were housing and gasoline. Gasoline fell 3.6 percent, while the shelter index rose 0.4 percent. The at-home food cost index was unchanged from April. Overall, the food index rose 0.1 percent, led by a 0.4 percent increase within the food away from home index.
Stabilization of the worldwide economy
The consumer price index was not the one indication of declining inflation.
On Tuesday, the World Bank published a report that The global economy appears to be stabilisingThe bank’s economists expect global economic growth to be 2.6 percent in 2024. Over the following two years, this rate is predicted to extend barely to 2.7 percent, well below the three.1 percent in the last decade before the pandemic.
“Advanced economies are doing well in the sense that we expect a gradual easing of monetary policy. This will be particularly helpful next year,” said Ayhan Kose, deputy chief economist on the World Bank.
Positive consumer expectations
Even without Fed motion, consumers are more optimistic about inflation within the short term, based on a report from the New York Fed.
May Survey on consumer expectationsThe survey, released on June 10, found that respondents expect inflation to fall to three.2 percent next 12 months, down 0.1 percent from the previous month’s survey.
The positive inflation outlook would be the reason why respondents are optimistic about their financial future. Around 78 percent of respondents expect their financial situation to be stable or higher next 12 months. This is the best percentage since 2021.
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