Image: (APA/AFP/SAUL LOEB)
But the Fed needs to make sure that it “really” has inflation under control. The monetary policy line must therefore remain tight, even if two interest rate cuts of a quarter of a percentage point each are possible in his view this year.
The Fed has raised key interest rates from near zero to a range of 5.25 to 5.50 percent since the beginning of 2022. Most recently, the monetary authorities stayed quiet three times in a row. According to investors’ expectations, the Fed is also likely to pause at the end of the month. However, an interest rate cut of a quarter of a percentage point is expected on the futures markets for March.
Several monetary authorities have recently tried to dampen the euphoria on the financial markets. Bostic’s colleague Lorie Logan from Dallas recently emphasized that an interest rate increase is not yet off the table. “If we don’t keep financing conditions sufficiently tight, there is a risk that inflation will rise again and erase the progress we have made,” Logan said over the weekend in San Antonio, Texas.
She pointed out that the yield on the ten-year US government bond had fallen from around 5 percent in mid-October to currently around 4 percent. This could pave the way for demand to pick up, thereby negating progress on inflation. US consumer price data for December is due on Thursday. Experts polled by Reuters expect inflation to rise to 3.2 percent from 3.1 percent in November.
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