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Will the US interest rate cut date be set this week?
According to the growth, inflation and spending data released in Washington last week, markets in America and the world see the new week as crucial for the Federal Reserve’s decision to begin a new cycle of interest rate cuts in March or to begin one postpone later.
This week, the U.S. Department of Labor is releasing four key assessments of America’s labor market, measuring labor demand, wage growth, productivity and employment. But the most important event of the week, the Federal Reserve’s two-day meeting on Tuesday and Wednesday, can tell markets with a high degree of confidence what to expect from the world’s largest central bank in the spring.
Federal Reserve Chairman Jerome Powell’s words following the expected announcement of interest rate stabilization will be of great importance to many markets around the world as futures contracts still reflect about a 50 percent chance of a rate cut in March, despite the Confirmation of… The bank said more than once that “it is still too early to start cutting interest rates.”
Christian Sherman, an American economist at DWS Group, told CNN: “After markets set a bearish direction at the December meeting and Federal Reserve officials went to great lengths to prevent this, the upcoming meeting represents one “It’s a great opportunity to move on.” Managing expectations.”
The American labor market and its interest
The December Job Vacancies and Labor Turnover Report, to be released on Tuesday, will highlight imbalances between supply and demand in the market by determining the current ratio of job vacancies to the number of job seekers seeking work. According to the Chairman of the Federal Reserve, the labor market is the most important factor in determining the development of inflation and therefore interest rates.
This ratio peaked at 2 to 1 in the spring of 2022 but has since fallen to 1.4 to 1 in November. Job vacancies have fallen from a peak of about 12 million in March 2022 to 8.79 million in November, and unemployment has stabilized near historic lows.
According to FactSet estimates Friday afternoon, economists expect employment to fall to 8.71 million in December. Monitors will also look at the layoffs mentioned in the report and look for signs of a weak labor market. Layoffs in recent months have remained below pre-pandemic levels.
Wages and the Federal Reserve on Wednesday
On Wednesday, the Labor Department will release the fourth-quarter ECI, a comprehensive measure of labor costs for business owners. The ECI has fallen steadily throughout 2023, but some economists say wage increases are still a bit too high and are not yet consistent with the Fed’s 2% inflation target.
Business owners recorded a 1.1% increase in wages and benefits in the July-September period compared to the previous three-month period, a slight increase from the 1% increase in the April-June period. However, this is less than the 1.4% increase in the first quarter of 2022. Economists expect the ECI report for the fourth quarter to show a 1% increase compared to the third quarter.
Later that day, the Federal Reserve announces its latest interest rate decision, which is widely expected to remain at its highest level in 23 years for the fourth consecutive day. Investors will be paying close attention to how Powell describes the policy stance, the improvement in inflation in recent months, the recent pace of economic growth and the state of financial conditions.
“At this week’s meeting, we expect the Fed to move to a neutral stance and not favor either tightening or easing at the following meeting,” Michael Feroli, chief U.S. economist at JP Morgan, wrote in a Friday Note. The forward guidance is the main topic this week, but there is also the rest of the statement and the press conference to consider.”
Feroli said that if Powell expressed anything about “keeping monetary policy accommodative until we are confident that inflation is on track toward that target,” that would be a signal from the Fed not to cut interest rates in March . Whether the markets will adjust their expectations accordingly is another question.
Productivity data and jobs report
Concluding an epic two weeks of economic news, this week’s expected January jobs report will assess the health of the U.S. labor market in the first month of the year.
Monthly wage growth has been strong in recent months, with employers adding a strong 216,000 jobs in December and the unemployment rate holding steady at a low of 3.7%. Average hourly wage growth last month also remained higher than anything seen in pre-pandemic times.
Fed officials will be relieved that January employment gains will be modest. Economists estimate that employers added 170,000 jobs in January and the unemployment rate rose to 3.8%, according to FactSet. This would be a welcome development for the Fed because it shows that the labor market is weakening somewhat, but not falling into the abyss.
Anything that adds fewer than 170,000 new jobs could also be a good thing for Fed officials, as long as it is above the minimum number of new jobs needed to keep pace with population growth, which is between 70,000 and 100,000. The Fed wants a calm labor market, which contributes to efforts to control inflation.
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