US Interest Rate Cut: Impact On Azerbaijan And Global Economies
Date
9/18/2024 6:09:42 AM
(MENAFN- AzerNews)
Akbar Novruz
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The US federal Reserve's (Fed) decision on interest rates is set
to be released today at 2 p.m. EDT (18:00 GMT), or 10 p.m. Baku
time, along with updated economic projections. This decision marks
the Fed's first expected rate cut after a prolonged period of
raising rates to tackle high inflation.
Market forecasts are divided. The Fed may lower interest rates
by either 0.25 percentage points or 0.50 percentage points. Most
predictions lean towards a 0.25 percentage point cut, reducing the
rate from 5.50% to 5.25%. However, some economists and investors
believe a more significant cut of 0.50 percentage points might be
necessary to stimulate economic growth. Analysts anticipate a total
rate reduction of at least 1 percentage point (100 basis points) by
the end of the year.
What might the potential worldwide repercussions
be?
While Americans will be directly affected, central banks with
currencies tied to the dollar will also see an impact. For
international investors in US stocks, a rate cut is generally
positive news. Lower interest rates tend to boost stock prices by
reducing borrowing costs for companies and making savings accounts
less attractive compared to equities.
Taking into account that there are less than two months left for
the presidential elections in the U.S., the FED will start lowering
the highest interest rates on such an eve. Inflation in the US has
approached the central bank's 2% target. By lowering interest
rates, the Fed wants to support economic growth and preserve job
growth along with it. Republicans and Democrats have been watching
this Fed's moves closely for two years, and a cut will likely help
Democrats as the party in power. But Fed Chair Jerome Powell has
said time and again that the bank is focused on economic data, not
politics, in making its move.
US job growth remains positive despite a slowdown, and recent
retail sales and industrial production data have surpassed
expectations. The Fed has maintained the discount rate at its
current range of 5.25-5.50% for 14 months.
Impact on Azerbaijan, what to expect?
Overall, the direct impact on Azerbaijan might be moderate
compared to larger economies. The Central Bank of Azerbaijan (CBA)
has indicated that inflation is generally stable and projected to
remain within the target range, while annual inflation increased
slightly in August and September, it stayed within the target range
of 4±2%. CBA expects inflation to remain within the target range
through 2024 and 2025, with future interest rate decisions
influenced by inflation dynamics and risk factors. The next
decision on the interest corridor is set for October 30, 2024,
whereas global monetary shifts could be expected after tonight's
decision on interest rates. In addition, note that the Central Bank
of Azerbaijan (CBA) operates a fixed-exchange rate regime, with the
manat pegged to the US dollar. But ultimately the Fed will release
a chart showing what its members predict, which could help shape
that picture.
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