Economists are betting on a long period of high rates, at least until June.
Six interest reductions over the next three years. Those are the market discounts, also by the forecasts made by the Federal Reserve itself, which without further ado this year could use three downward revisions of a quarter of a point each, from the current level, which lies between 5.25% and 5.5% -and what to expect remained this way at this week’s Fed meeting-.
Without much consensus on when the central bank will begin to relax monetary policy. According to his predictions, it’s probably summer. However, the market believes that macroeconomic data warrants early action. The most optimistic belief is that even at the meeting that the organization held in the middle of March.
The latest statistics give wings to both theses. On the one hand, the Employment figures suggest a slight increase in unemployment, located at 3.7% (compared to the historical minimum of 3.4% registered a year ago). This is still a low level, but the trend speaks of a decline in job creation. On the contrary, continued salary increases and, therefore, analysts expect household consumption to remain stable.
Throughout 2023, the unions have achieved important victories in the US, signing the increase in payrolls that started this year, which in some cases are between 10% and 20%. It should be noted that the Hollywood screenwriters reached an agreement at the end of September last year. Among the most important negotiations is the agreement reached by the United Auto Workers in the motor industry, which is not only applied to unionized companies but also serves as a working framework for other companies, such as Tesla or Toyota.
The country’s GDP closed last year with an increase of 3.3%which exceeded all analyst forecasts and removed the specter of recession. All pools point to a soft landing for the economy this year.
Speaking of inflation, lights and shadows. Although the long-term trajectory has been confirmed downward and seems to be heading towards the goal set by the Fed at 2%, in monthly data it is more irregular, with several increases in the last semester, to end the year in 3.4% (three tenths more than the minimum for the year, recorded in November)
Now, JPMorgan, warns that most of the increase in the overall CPI can be attributed to food and energy prices, which are influenced by non-economic factors, such as the US oil production record or the easing of supply chain restrictions.
“A sharp increase in immigration to developed markets, driven by the reopening of borders after the pandemic and Geopolitical conflicts also complicate the role of monetary policy”The fear of a reacceleration of Inflation, as happened in the 1970s when Arthur Burns headed the Fed, can also be an incentive to investors. central banks will wait a longer time than in the past before starting to relax their monetary policies.
The Fed finds itself in uncharted territory, with various statistics and predictions that are rarely correct. And although the market is betting on the need to improve the road map when it comes to cutting rates, analysts also warn of the risks of doing it prematurely, causing the dollar to fall which, in turn, will reactivate inflation.
As a result, a sharp recession is inevitable. Such as when interest rates remain high higher than they should be, causing bank defaults and creating a new financial crisis such as the one experienced last spring after the bankruptcy of Silicon Valley Bank.
But if you have to choose, Analysts tend to think the Fed will keep rates higher than expected. “No one has a crystal ball, so it’s important to stay nimble and remember that rates may stay high for a while,” said Callie Cox, US investment analyst at eToro.
According to experts, This is the least bad option they estimate that the first cuts will not arrive in the United States until the summer, more or less the same time in Europe, according to the ECB’s calendar.