Fed considers 1st rate cut in 4th quarter following 23-year high to address inflation

(MENAFN) Pricing in the money markets suggests the possibility of the Federal Reserve cutting its policy rate in the fourth quarter, following a 23-year peak aimed at combating inflation. However, cautious statements from Fed officials and mixed US macroeconomic data continue to create uncertainties about this potential move.

While central banks worldwide struggle with inflation, the Fed's specific plans remain unclear despite indications of a cooling US economy. One major factor limiting the Fed's policy options is the tight labor market. This situation, coupled with the potential for a soft landing in the economy, suggests there may be no urgency to start cutting rates.

Currently, the US unemployment rate stands near historic lows at 3.9 percent. Meanwhile, the Consumer Price Index (CPI) rose by 3.4 percent in April, remaining above the Fed's 2 percent target. The US gross domestic product (GDP) grew by 1.3 percent in the first quarter, marking the lowest growth rate since the second quarter of 2022, according to preliminary GDP data released in April. Projections had anticipated a 1.6 percent growth for the first quarter of 2024.

The core personal consumption expenditures (PCE) index, excluding food and energy items, increased by 0.2 percent month-on-month in April, falling short of expectations, and by 2.8 percent year-on-year, aligning with estimates. In March, the core PCE index had risen by 0.3 percent month-on-month and 2.8 percent annually.

Despite some softening in the data, analysts note that the impact of the Fed's hawkish decisions to fight inflation has not yet reached the desired level.

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