The Fed confirms the intention to cut interest rates, although it extends the deadlines

The Fed confirms the intention to cut interest rates, although it extends the deadlines

The United States Federal Reserve (Fed) reconfirmed that it foresees at least a cut in the interest rates for 2024, although they anticipated that it will occur “later”, depending on the evaluation of that country’s economic data.

This was stated by the president of the Fed, Jerome Powell who pointed out that the cuts rates “will really depend on the direction of the economy”, mainly those linked to the decline in the inflation.

“Our focus is on the maximum employment and price stability, and incoming data that affects the outlook, and those are the things we will be looking at,” he said Powell in prepared remarks before the House Financial Services Committee.

And he assured that at Fed “would like to see more data that confirms and makes us feel more confident that inflation is sustainably coming down to 2%” before reducing the interest rate.

On the other hand, Powell assured that the reductions in rates “They will probably be appropriate” later in the year, “if the economy generally evolves as expected.”

Thus, he warned that progress in reducing the inflation “not guaranteed,” a fact that prevents Fed officials from committing to any timeline or pace of rate cuts.

“Powell has been very measured in what he said about the overall health of the American economy. And from an inflation standpoint, we’re not there yet,” he said. Phil Blancato, CEO of Ladenburg Thalmann Asset Management in New York, who noted: “His comments will support the idea that the Fed is not yet ready to cut.”

How does this panorama affect Uruguay?

The definitions of the Fed influence the behavior of the currency in the foreign exchange market Uruguay, where the price of dollar is going through a moment of ups and downs although it is virtually “ironed” so far this year, without expecting a correction of the exchange delay.

It is that local factors such as the MPR that defines the Central Bank of Uruguay, the exports and the Foreign direct investment are not the only ones that influence the exchange rate directly, but expectations of a short-term rate cut by the Fed can lead to a depreciation of the dollar at the local level.

At the same time, an eventual rate cut could give a boost to the Uruguayan global bonds, since the yield curve will go down and its price will increase.

Source: Ambito

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