In quarterly economic projections to be released at the end of a two-day meeting, US central bankers are still expected to forecast at least some rate cuts by the end of next year as they seek to find the right balance between policy that is sufficiently restrictive to slow down spending and hiring, but not so restrictive that it sends them into a tailspin.
However, Fed chief Jerome Powell is expected to emphasize at a press conference that any cuts in borrowing costs depend on a further improvement in inflation.
On Wednesday, just before Fed officials met for the final day of policy deliberations for the year, the central bank got just that, with November's reading on producer prices signaling that inflation is falling faster than expected just three months ago.
“It will be difficult for Powell to ignore this,” Karim Basta, chief economist at III Capital Management, said of the PPI data, which he estimated puts the Fed’s core inflation over the past three months right at its 2% target. Although data released on Wednesday suggested he could seize the moment to declare victory and anticipate a “soft landing” next year, most analysts think he will skip a celebration.
“Powell will have to walk a fine line in acknowledging the ground gained toward normalizing the economy while rejecting the idea of early rate cuts,” and even warning that the Fed could still raise rates again if necessary , TD Securities analysts wrote. when the Fed meeting began on Tuesday. And, in fact, the economy has normalized a lot. Inflation by the Fed's preferred measure, the personal consumption expenditures price index, fell to 3% at the latest reading, from more than 7% at its peak in summer 2022.
The unemployment rate in November fell to 3.7%, just above where it was when the Fed began raising interest rate from the near-zero level in March 2022. The Fed will give its view on where inflation, unemployment and GDP are likely to be in the coming years as part of the projections. Reuters