Recent US economic data has caused investors to reduce their bets on the possibility of the Fed continuing to loosen monetary policy at its December meeting.
Last weekend, the US Department of Commerce announced that the country’s retail sales in October increased by 0.4%. September’s increase was also adjusted to double, to 0.8%. Imported goods are 0.3% more expensive, after 2 consecutive months of decline.
Previously, officials said the US consumer price index (CPI) in October increased by 2.6% over the same period last year. Economists say the pace of cooling inflation is slowing down.
Besides, President-elect Donald Trump will take office early next year. The policies he proposed, such as tightening immigration or increasing import taxes, are expected to fuel inflation here. US Federal Reserve (Fed) officials did not directly say they were considering this issue. However, investors and markets have begun to assess the impact that will have on the Fed.
According to the CME FedWatch interest rate tracking tool, investors now forecast that the probability of the Fed loosening monetary policy next month is only 60%, instead of 70% previously.
Reference interest rate developments in the US in the period 2000-2024. Graph: CNBC
In recent statements, Fed officials continue to believe that inflation is under control, paving the way for lowering reference interest rates. The current interest rate (4.5-4.75%) is considered high, making it difficult to encourage investment and consumption. However, the level and speed of the decline is still a point that Fed officials spend a lot of time discussing.
Fed Chairman Jerome Powell said last week that the economy remains stable, meaning they are in no rush to lower interest rates. However, Boston Fed President Susan Collins said they could not rule out monetary easing at the meeting in mid-December.
“I definitely won’t abandon next month’s plan, but will carefully consider the data at the time of making a decision,” she said on Facebook. Bloomberg.
Some other officials signaled that even if interest rates are kept unchanged next month, it means they are slowing down monetary easing, not stopping the process completely. Above Yahoo! FinanceRichmond Fed President Thomas Barkin repeated Dallas Fed President Lorie Logan’s previous comparison, that “the captain is just slowing the ship down as it nears shore.”
Above CNBCChicago Fed President Austan Goolsbee commented that the Personal Expenditures Price Index (PCE) still increased strongly, with 2.8% in October. However, he kept his forecast that inflation would return to the 2% target, his expectation. The Fed cuts 25 basis points next month and 100 basis points next year. Accordingly, by 2026, the reference interest rate in the US will be around 2.9%.