There is one rate hike left this year. That is what the ‘dotted line’ suggests, that is, the forecasts of those responsible for setting monetary policy in the United States Federal Reserve (Fed). With two more meetings to go in the remainder of 2023 – one in November, the other in December – this indicates that 2024 will begin with US interest rates in the environment 5.5%-5.75%.
This will be followed by a prolonged period of relatively high rates. The same ‘dotted line’ from the ‘Fed’ suggests that 2024 will end with the price of money at 5%. That means two declines in the entire year, which will mean very little for US economic agents. The era of ultra-low rates that began in 2008, as a result of the ‘junk mortgage’ crisis, and which lasted for almost a decade and a half amid successive waves of deflation risk (that is, falling prices) and, then, from the economic paralysis caused by Covid-19, it seems to be over.
In general, the US central bank does not seem to have changed its analysis of the situation in the world’s largest economy. If in its last meeting, six weeks ago, it said that growth was “moderate”, it now describes it as “solid”. And the labor market has stopped being “robust” to “show signs of deceleration in recent months”, despite which it remains “strong”. These are nuances that are too minuscule, even for a central bank. So it can be considered that the US economy continues more or less as it was in the summer and that, therefore, the Federal Reserve continues to decide its monetary policy in a “data-dependent” manner, which is like the president of the issuing institute, Jay Powell, He defined it in August.
With that phrase, Powell was saying that the price of money in the United States was going to be fixed depending on what the economy was like, and that at that time it was incapable of giving a precise guide to what was going to happen with inflation and unemployment, which are the two indicators that fall within the field of responsibility of the Federal Reserve.
The US economy has defied expectations, and has not fallen into recession. In fact, economic growth remains robust – although, incredibly, public opinion does not see it that way – and the labor market is close to full employment, so inflation, although it continues to decline slowly, is still more than one point above the 2% target of the central bank. So Powell’s words at the central bankers’ meeting at the end of August in Jackson Whole, in August, that we are “only at the beginning” for prices to begin to evolve as the ‘Fed’ wishes are still fully valid.