For the United States, 2024 will be a year of lower interest rates. At least that's what the members of the Federal Reserve's monetary policy committee believe, who updated their forecasts for the coming year this Wednesday. There are different opinions about the intensity that this monetary easing will have, but the median suggests that the reduction will be 0.75 points by the end of the year, from the level of 5.25% set by the Central Bank 5.50% The price of money was maintained as assumed at its last meeting this year. It is the highest level in almost 23 years.
The medium forecast assumes that interest rates will be at the level of 4.625% at the end of 2024 (this corresponds to a range of 4.5% to 4.75%), and will be reduced again by one point to 3.625% in 2025 become. (Volume of 3.5). percent to 3.75%) and up 0.75 points to 2.875% in 2026 (midpoint of the 2.75% to 3% range), according to data released Wednesday by the Federal Reserve.
These predictions have limited value because those who formulate them are fundamentally the ones who have to make the decision, do not compromise in their actions and often deviate from reality. If the cuts were 0.25 points, there would be no further increase beforehand and if the forecast were fulfilled, there would be three reductions next year.
Maximum on the stock market
Federal Reserve Chairman Jerome Powell didn't want to completely close the door on another hike in interest rates if necessary, but the general consensus is that the last upward move in this cycle was that of July. “When we started, the first question was how fast should we move, and we were very fast. The second question is how much to raise the official rate, and that is the question we are moving forward with,” he said, but conceded: “We think we are probably at or close to the maximum rate for this cycle .” Stock markets reacted sharply to the rise and the Dow Jones index closed at a new all-time high of 37,090 points after rising 1.4% in the session.
Powell said that committee members “do not think it is likely that it is appropriate to raise interest rates further, but they do not want to rule out that possibility.” That is, they do not rule it out entirely if the fight against inflation becomes complicated becomes.
What the forecasts show is the expected level at the end of each year, so there is not much guidance as to when the first cut will occur. However, Powell has made it clear that he does not want to be late because it could jeopardize the economy. “We are aware of the danger of holding out too long,” he said. “We know it is a risk and we are very focused on not making that mistake,” he added.
Over the past two years, the price of money has risen five points, the most aggressive monetary tightening since the 1980s, precisely to counteract the highest inflation in four decades.
Now it's time for the first cut in four years. The last time the central bank cut interest rates was in March 2020, after the economic collapse caused by the pandemic, when it set the key interest rate between 0% and 0.25%. The market is divided on the timing of the first cut of the new cycle. The bets discarded on January 31 will be spread over March 20, May 1 and June 12, the other dates on which decisions on tariffs will be made in the first half of next year.
Without singing victory
In previous forecasts published in September, committee members assumed there would be another rate hike this year, but that ultimately did not happen. From that level, they expected a half percentage point cut in 2024, leaving interest rates at 5.00% to 5.25% at the end of next year, so much larger easing is now expected, which markets are already pricing in have.
Powell has repeatedly warned of the danger of claiming victory too early in the fight against inflation, which peaked at 9.1% in June 2022 and has since fallen almost steadily to 3.2%. Although progress is evident, inflation is still well above the 2 percent target. Core inflation, excluding energy and food prices, is 4%, so there is still a lot of work to do. “No one is declaring victory. That would be premature,” Powell said.
An operator of the New York Stock Exchange during the Federal Reserve President's press conference. BRENDAN MCDERMID (Portal)
At the same time, the tightening of monetary policy has not yet had its full impact on the economy. Analysts agree that growth is slowing in this fourth quarter and expect the economic slowdown to continue despite all odds in 2024, with a recession not being ruled out. Powell himself does not dare to rule it out, although his goal is the soft landing outlined in the forecasts of Federal Reserve advisers. “Inflation continues to fall, the labor market continues to balance and everything is going well at the moment,” he said.
These forecasts suggest gross domestic product (GDP) growth of 1.4% in 2024; 1.8% in 2025 and 1.9% in 2026. Given this weak growth next year, the unemployment rate would rise to 4.1% and remain there at the end of 2025 and 2026. In this almost idyllic scenario, inflation would fall to 2.4% in 2024; to 2.1% in 2025 and 2% in 2026. Time will tell how accurate these forecasts are.
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