The Fed will cut interest rates during 2024 but there is no rush to do so immediately because progress on the inflation front is "not assured".
Jerome Powell, speaking before the American chamber, reiterates the need to wait for further confirmation on price trends before intervening on the cost of money.
“We believe our rate policy is at its peak for this cycle. If the economy evolves as expected, it will be appropriate” to cut rates “at some point this year,” Powell highlights, but warns about the uncertainty of the economic outlook.
Among these there could be new tensions on the banking sector as shown by the difficulties of New York Community Bancorp, which since the beginning of the year has lost 70% on Wall Street and has started contacts with external investors for a capital injection in an attempt to reassure the market and shareholders.
At the moment, however, "there are no reasons to expect a recession in the American economy in the short term. Growth is expected to continue", adds the Fed president, reiterating that a 'soft landing' appears within reach.
Immigration contributed to the good performance of the economy in 2022 and 2023, Powell admits, while avoiding going overboard
.
The migrant emergency is at the center of the electoral campaign and the president of the Fed wants to stay away from the issue that is stirring the political debate in the presidential year, aware that any opening, in one sense or another, could be politically misrepresented.
Powell wants to keep the Fed safe from political attacks and criticism, a difficult goal to achieve this year with the expected rate cut that should help the economy and therefore expose the central bank to controversy for 'helping the White House of Joe Biden'.
Cutting rates too soon or too quickly "could reverse the progress made and require further tightening to bring inflation down to 2%
", Powell explains to the chamber, noting how, "at the same time", cutting rates "too late or too little" could weaken economic activity and employment.
“As we consider adjustments to the cost of borrowing, we will carefully monitor the data, the evolving outlook and the risks. The Fed does not believe it will be appropriate to reduce rates until it has greater confidence that inflation will decline towards 2%. "Powell highlights.
"We remain committed to returning inflation to 2% and keeping long-term inflation expectations well anchored. Restoring price stability is essential to achieving maximum employment and stable prices," he further observes.
His words reassure Wall Street, where the stock prices rise sharply, because they do not reveal any news and confirm the Fed's intention to act.
The most popular hypothesis among analysts is a rate cut in June, perhaps in July if the economy continues to run and inflation falls less than expected.
The next Fed meeting is scheduled for March 19 and 20, while Christine Lagarde's ECB is scheduled for March 7.
No news is expected from the Eurotower on the interest rate front (a cut is expected in the second half of the year), but the president's words will be analyzed in detail to see if there are concerns about the stability of the euro area economy .
The Ifo research institute has in fact drastically cut its estimate for Germany's growth to just 0.2% for 2024. A slowdown, that of the German locomotive, which risks having a negative impact on the entire economy of Euroland.
Reproduction reserved © Copyright ANSA