Economists Lead the Debate on Future Rate Trends
Fed signals July rate hold amid economic shifts; economists differ from markets on future cuts. Global markets respond to diverse factors.
The U.S. Federal Reserve’s approach to holding interest rates until at least July reflects a shift in economist expectations, diverging from the market forecast. The consensus among 102 polled economists is that the Fed’s rate hikes are concluded, although Chair Jerome Powell’s statement about further tightening if necessary has added nuance.
Expectations regarding future rate cuts diverge between economists and markets. While markets anticipate approximately 150 basis points of cuts from March onward, economists foresee fewer and delayed rate reductions. Most economists, 72 out of 102, project 100 basis points of cuts or less in the upcoming year. The debate centers on how long the current 5.25%-5.50% federal funds rate will persist.
Stay on top of the news with our special Forex Economic calendar
Economists follow key market data
Inflation remains a concern, with measures like CPI, core CPI, PCE, and core PCE anticipated to gradually decline but hover above the central bank’s 2% PCE target until at least 2025. The real interest rate, adjusted for inflation, could become more restrictive if unchanged, potentially posing risks to the economy’s pace.
The U.S. economy, despite recent robust growth and inflation surpassing targets, is expected to decelerate from a strong 5.2% annualized pace to 1.2% this quarter and average the same in 2024. Nonetheless, it has weathered aggressive tightening measures, with unemployment rates low and job additions anticipated to persist.
Labor market under observation by economists
The prospect of the Federal Reserve pivoting toward rate cuts has influenced market movements, evident in the recent drop in 10-year Treasury note yields and the S&P 500’s significant year-to-date increase of over 19%.
Concerns around the labor market surfaced as October’s job openings decreased significantly, reaching their lowest level since 2021. This data, along with reports indicating fewer job openings and accelerated growth in service businesses, may influence the Fed’s stance.
Major companies
Corporate highlights include significant developments such as Apple’s potential exemption from EU antitrust rules for its iMessage service and Exxon Mobil’s plans for increased share buybacks. Additionally, Tesla faced setbacks in a labor dispute in Sweden, while British American Tobacco Plc took a hit by writing down its US cigarette brands.
Global rates
Global markets witnessed varied movements, with European indices like London’s FTSE 100 and Germany’s DAX rising, and Asian indices like Hong Kong’s Hang Seng and Tokyo’s Nikkei 225 also experiencing gains.
Economists expecting more data this week
The week ahead includes key events like China’s trade and forex reserves, Eurozone GDP, Germany’s industrial production and CPI, Japan’s household spending and GDP, and the US jobs report and University of Michigan consumer sentiment.
Commodities
Commodity markets saw West Texas Intermediate crude declining, while spot gold rose. Currencies experienced fluctuations, with the dollar index falling, the euro and pound remaining relatively stable, and cryptocurrencies like Bitcoin and Ether exhibiting upward movement.
Our economic blog provides regular news updates and helpful Forex trading tips
