Work/Life/ Inflation
By Felix Richter
Fed slowing down interest rate hikes, coming in for ‘soft landing’
T wenty-one aggressive monetary tightening cycle in decades, it looks increasingly likely that the optimal outcome under the circumstances— bringing down inflation without inducing a months after the Fed embarked on the most recession and causing a significant increase in unemployment— can be achieved. With Consumer Price Index (CPI) inflation down to 3.1% in November, the unemployment rate
adding quickly that the Fed would be prepared to tighten policy further if needed. As it stands, further tightening looks increasingly unlikely though, as rate cuts have come into view as the more likely scenario going into 2024. According to the FOMC’s Summary of Economic Projections, the median projection for the appropriate level of the federal funds rate at the end of 2024 is now 4.6%, meaning that members of the Federal Open Market Committee are currently expecting three 0.25% rate cuts for next year, followed by further cuts throughout 2025 and 2026. Looking at the price index for personal consumption expenditure
still hovering below 4% and U.S. GDP on track to grow 2.5% this year, the often-quoted “soft landing” is in sight, even though Fed Chairman Jerome Powell refuses to declare “mission accomplished” just yet. There was still a new tone of cautious optimism in Powell’s press conference following the latest Federal Open Market Committee (FOMC) meeting in December. Having evaded questions about the possible end of rate hikes after the last meeting in early November, he now says that “the policy rate is likely at or near its peak for this tightening cycle,”
(PCE), FOMC members expect inflation to drop from 2.8% in the fourth quarter of 2023 to 2.4% in Q4 2024, 2.1% in Q4 2025 and return to its target level of 2% by the end of 2026. And while that could come at the cost of a slowdown in GDP growth in 2024 and beyond, meeting participants don’t expect a significant increase in unemployment for the next three years.
January 2024
NorthBaybiz 15
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