Rates firm, with three cuts confirmed in 2024. The markets reacted well to the decision but the Federal Reserve, at its March meeting, however confirmed that inflation is slightly more resilient than previously expected. In concrete terms, the “dots” only indicated a cut less, by 25 basis points, for 2025, in part perhaps linked to the idea that the US economy has shown some structural changes (even if the long-term forecasts have not been touched). During the meeting, the opportunity to slow down the pace of reduction of the securities portfolio was also discussed, without taking any decisions; even if the orientation seems to be that of having to intervene in this sense “quite soon”.
The rates on Fed Funds therefore remain at 5.25%-5.50%, the level to which they were raised in July last year, the highest since 2001. The governors, however, seem to have taken a slightly more restrictive orientation: this is which emerges from the “dots” – the points with which they announce individual forecasts on the trend of rates – seem to confirm in the aggregate the cuts expected for this year, up to 4.5-4.75%, while for the year next time we aim for 3.75-4% and no longer 3.5%-3.75%. Similarly, for 2026 the governors now, in the median of their indications, seem to have the objective of 3-3.25% and no longer 2.75%-3%. Ultimately this is one less cut in the time horizon of the projections.
These new indications also arise from a slightly higher long-term “implicit objective”: after having remained at 2.5% since June 2019, it is now slightly adjusted to 2.5%-2.75%. It is most likely a sign that a sufficient number of governors believe that the US economy has undergone structural changes capable of modifying, albeit slightly, the equilibrium rate. In 2011, long-term guidance still pointed to 4%.
However, the March macroeconomic projections do not indicate substantial changes in long-term values: 1.8% for growth, 2% for inflation, 4.1% for employment. However, some indications are changing in the time horizon of monetary policy. For 2024, growth of 2.1% is indicated, against the 1.4 of the December estimates, for 2025 and 2026 of 2% (against, respectively, 1.8% and 2%) . However, the return of inflation to the target is slower, at least this year: it is expected at 2.4% in 2024 (unchanged), 2.2% in 2025 (from 2.1%) and 2% in 2026 Core inflation, which is even more significant in the US than elsewhere, is indicated at 2.6% this year (from the 2.4% indicated in December), but at 2.2% in 2025 and 2% in 2026 (unchanged).
“Inflation is still too high and progress in bringing it down is not guaranteed,” said President Jerome Powell at the opening of the press conference; although, he added, wage growth has slowed and the imbalance between supply and demand has narrowed and he promises to improve further. “We believe our monetary policy rate is likely to be at its highest,” he added, and “if the economy evolves as expected, it will be appropriate” to cut rates this year. In any case, the Fed «remains very attentive to the risks of inflation: we are prepared to maintain the current range (of rates, ndr) for a longer period if necessary.”
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2024-03-21 05:45:58