The United States Federal Reserve plans to lower interest rates by 0.75 points in 2024

 

The central bank of the United States maintains the price of money at 5.25%-5.50% in its last meeting of the year

For the United States, 2024 will be a year of lower interest rates. This is what at least the members of the Federal Reserve's monetary policy committee believe, who this Wednesday updated their forecasts for next year. There are different opinions about the intensity that this incipient relaxation of monetary policy will have, but the median of the governors suggests that the reduction will be 0.75 points until the end of the year from the level of 5.25%-5.50 % in which the central bank has maintained the price of money in its last meeting of the year, as was assumed. It is the highest level in almost 23 years.

The median forecast indicates that rates will be at the end of 2024 at the level of 4.625% (the equivalent of a range from 4.5% to 4.75%), to be cut again in 2025 by one point to 3.625%. (band from 3.5% to 3.75%) and in 2026, 0.75 points more, to 2.875% (central point of the range from 2.75% to 3%), according to data published by the Federal Reserve this Wednesday. These forecasts have a qualified value because those who formulate them are basically the ones who have to make the decision, they do not compromise their actions and they frequently deviate from reality. If the cuts were 0.25 points and that forecast is met, there would be three drops over the next year.

Furthermore, what the forecasts point to is the level at the end of the year, so there are no clues as to when the first cut will occur. In the last two years, the price of money has risen five points, the most aggressive tightening of monetary policy since the 1980s, precisely to counteract the highest inflation in four decades.

In the previous forecasts, published in September, committee members anticipated one more rate hike before the end of this year, which ultimately did not occur. From that level, they were counting on a reduction of half a point in 2024, until leaving rates at 5.00%-5.25% at the end of next year, so now a greater relaxation is expected that the markets have already been discounting.

The president of the Federal Reserve, Jerome Powell, will give some clues about the evolution of his monetary policy in the press conference that begins at 2:30 p.m. in Washington (8:30 p.m. in mainland Spain). Powell does not completely close the door to an additional increase in interest rates if necessary, but the general feeling is that the last upward movement of this cycle was in July.

Now it is the turn of the first reduction in four years. The last time the central bank lowered rates was in March 2020, following the economic collapse caused by the pandemic, when it placed the federal funds rate between 0% and 0.25%. The market is divided on the timing of the first cut of the new cycle. Discarded on January 31, the bets are spread between March 20, May 1 and June 12, the other dates on which there will be decisions on rates in the first half of next year.

Powell has repeatedly warned about the risk of claiming victory too soon in the battle against inflation, which peaked at 9.1% in June 2022 and has since fallen almost uninterruptedly to 3.2%. of November. Although progress is evident, inflation is still clearly above the 2% target. Core inflation, excluding the price of energy and food, is at 4%, so there is still work to be done. At the same time, the tightening of monetary policy has not yet had its full effects on the economy. Analysts agree that growth is slowing in this fourth quarter and believe that, despite all the resistance it has shown, the weakening of the economy will continue in 2024, without a recession being ruled out.

In the forecast table of the members of the Federal Reserve, a growth in gross domestic product (GDP) of 1.4% is pointed out 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%, to remain there at the end of 2025 and 2026.