The Federal Reserve (Fed) maintained interest rates at 5.25-5.50% in its first meeting of 2024. Maintaining this level, the highest in more than two decades, was expected. The doubt was whether it would give clues about the start of the cut, which did not happen.
I telegraph an idea that was taken for granted. The era of rising rates has peaked. It is over, for now, increasing restrictive measures to tame inflation and leave it at 2%. However, he also does not express his plans to begin the new era of cheaper money, with inflation still above its objective.
While financial markets accepted months ago that it is very likely that the Fed has ended the plan to raise the price of money, the more looming question is when the rate cuts will begin. The US central bank has not imposed an increase since last July’s meeting. Since then, inflation numbers have fallen and, by a Fed measure, are barely one percentage point away from the Fed’s monthly target.
Inflation rose to 3.4% in December, a far cry from the 9.2% in June 2022, a time of maximum concern and when the central bank deployed all its weapons to combat it. Despite fears of an excessive cooling of the economy, this long period of high interest rates has not weakened the strength of the labor market, one of the most influential factors in the recession, according to the Fed, nor the vitality of consumer spending. , in a complete challenge to the policy of the Federal Reserve.
Just a few weeks ago, the futures markets expressed their belief that the Fed would begin to cut next March, two years after the increases began, attributing almost a 90% chance to this movement, according to the CME Fed Watch group, which study the indicators.
But this week’s meeting came at a time when there was more uncertainty, as multiple statements from Fed officials pointed to a more cautious approach to declaring victory over inflation. It was clear that any cut could be interpreted as a sign of the end of the stage rather than relief.
The members of the Reserve, including its president Jerome Powell, considered on Tuesday, before the start of the meeting, that there is a large amount of data to process between January and March, particularly that related to core inflation, which excludes the prices of the most volatile elements such as energy and food, more resistant than expected. Many US lawmakers had expressed concerns about excessive and prolonged tightening.
But those same Fed officials had indicated in recent days that there is no rush to cut, in this caution we must not forget that in 2021, when the inflation alarms sounded, the leaders of the central bank looked elsewhere. side and did not act because they made a bad calculation and maintained that the price increase was something temporary and temporary.
The International Monetary Fund (IMF), in its 2024 outlook report, noted that stock markets appear overly optimistic about early interest rate cuts. The IMF predicted that the major central banks will maintain current rate levels until the second half of 2024. The geopolitical uncertainty that exists in a world that is in a mess, with numerous open conflicts, plays in favor of this forecast.
