Interest.co.nz on Nostr: Alan Shipman argues the idea US interest rates will stay higher for longer is ...
Alan Shipman argues the idea US interest rates will stay higher for longer is probably wrong
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The modest uptick in annual inflation in the US has raised questions about whether the Federal Reserve can afford to cut interest rates as fast as it planned. The US economy has returned to pre-pandemic levels, while Europe is struggling to achieve growth, leading to a difference in inflation figures. Financial markets reacted bearishly, with stocks being dumped and EU government bonds being bought. However, the US inflation rate and that of other regions, notably the European Union, have diverged. The strength of the US economy and the quickening of consumer-price inflation give the Federal Reserve an added incentive to be hawkish on rates. Traders now expect the Fed to delay rate cuts until December, compared to the previous expectation of September. An extended period of higher rates could be damaging due to high levels of private-sector debt. However, the longer inflation endures, the more pressure there is to delay further rate cuts. There is an expectation that inflation will stay around 3% for the next year. An especially fraught presidential election race also limits the Fed's maneuvering room. The case for cutting rates sooner relates to inflation, as higher interest rates may raise prices and cause an inflation overshoot. The Fed must also consider the global downside of holding firm while other central banks' interest rates fall. If the Fed doesn't let headline rates fall, it could lead to a global slowdown. Despite these factors, financial markets could still be proved wrong about the speed of US rate cuts. The Fed is expected to follow the European Central Bank in cutting rates, even if it means US inflation remains above target into 2025.
#UsInterestRates #FederalReserve #Inflation #EconomicGrowth
https://www.interest.co.nz/economy/127295/alan-shipman-argues-idea-us-interest-rates-will-stay-higher-longer-probably%C2%A0wrong
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The modest uptick in annual inflation in the US has raised questions about whether the Federal Reserve can afford to cut interest rates as fast as it planned. The US economy has returned to pre-pandemic levels, while Europe is struggling to achieve growth, leading to a difference in inflation figures. Financial markets reacted bearishly, with stocks being dumped and EU government bonds being bought. However, the US inflation rate and that of other regions, notably the European Union, have diverged. The strength of the US economy and the quickening of consumer-price inflation give the Federal Reserve an added incentive to be hawkish on rates. Traders now expect the Fed to delay rate cuts until December, compared to the previous expectation of September. An extended period of higher rates could be damaging due to high levels of private-sector debt. However, the longer inflation endures, the more pressure there is to delay further rate cuts. There is an expectation that inflation will stay around 3% for the next year. An especially fraught presidential election race also limits the Fed's maneuvering room. The case for cutting rates sooner relates to inflation, as higher interest rates may raise prices and cause an inflation overshoot. The Fed must also consider the global downside of holding firm while other central banks' interest rates fall. If the Fed doesn't let headline rates fall, it could lead to a global slowdown. Despite these factors, financial markets could still be proved wrong about the speed of US rate cuts. The Fed is expected to follow the European Central Bank in cutting rates, even if it means US inflation remains above target into 2025.
#UsInterestRates #FederalReserve #Inflation #EconomicGrowth
https://www.interest.co.nz/economy/127295/alan-shipman-argues-idea-us-interest-rates-will-stay-higher-longer-probably%C2%A0wrong