WASHINGTON, Dec. 22 (Xinhua) -- It remains to be seen whether the Federal Reserve will cut interest rates next year and whether the economy can have a "soft landing."
According to data released by the U.S. Department of Commerce on the 22nd, the U.S. personal consumption expenditures (PCE)** index increased by 2 percent year-on-year in November6%, and the core PCE** index, which excludes food and energy**, increased 3% year-on-year2%, the increase was narrower than the average of the previous month. The narrowing of PCE gains suggests that US inflation is "cooling". The market generally believes that the Fed's current rate hike cycle may be over and may cut interest rates next year, while it remains to be seen whether the U.S. economy can have a "soft landing".
The Federal Reserve held its last monetary policy meeting of the year in the middle of this month and announced that it would maintain the target range for the federal interest rate at 525% to 55% is unchanged. This is the third time in a row that the Fed has left this interest rate range unchanged since September this year.
In its post-meeting statement, the Fed said it would consider the cumulative degree of tightening of monetary policy, the degree of lag in the impact of monetary policy on economic activity and inflation, and economic and financial developments when determining "any" policy for further monetary tightening.
Fed Chair Jerome Powell said at a post-meeting press conference that the use of the word "any" indicates that the Fed believes that current interest rates may be at or near the peak of the current rate hike cycle, but does not rule out the possibility of further rate hikes. He also said that while the Fed has made progress in reducing inflation, it still has a long way to go and that the Fed is cautiously assessing whether more action is needed.
At the same time, the Fed expects U.S. economic growth to slow next year. The Federal Reserve recently released its latest economic outlook expectations, raising its U.S. economic growth forecast for this year by 0.0 compared with September5 percentage points to 26%, while lowering the economic growth forecast for 2024 by 01 percentage point to 14%。The Fed believes that tighter financial and credit conditions for households and businesses could weigh on economic activity, but the extent of the impact remains uncertain.
In response to the question of whether the U.S. economy can achieve a "soft landing", Wall Street recently said that 6 months ago, the surveyed economists generally believed that the U.S. economy would enter a recession in the next 12 months, and in the October survey, economists on average would not have a recession. The report argues that U.S. inflation is falling better than expected and there are no signs of a recession at the moment, but consumers have begun to cut back on spending.
In the recent Fed statements, the expectation of a rate cut has attracted much attention. The "dot plot" in the Fed's latest economic outlook projections shows that 17 of the 19 Feds** expect policy rates to be lower than they are by the end of 2024, with most expecting rates to fall by 50 or 75 basis points. This means that if you calculate at 25 basis points per cut, the Fed will cut rates two or three times next year.
Although the expectation of interest rate cuts has caused a large response among investors, as Powell said, the "dot plot" does not represent the actual monetary policy, and there is considerable uncertainty about the Fed's future interest rate path.
After nearly two years of rapid monetary policy tightening, the Fed's pivot to rate cuts next year seems the most likely outcome, and they say in an analysis that the Fed will cut rates for the first time at its monetary policy meeting in June next year, economists at Wells Fargo said in an analytical note. According to the report, the US economy could achieve a "soft landing" in 2024, but even if a contraction can be avoided, real economic growth in the coming quarters could be below trend due to the restrictive stance of monetary policy.
Desmond Rahman, an economist at the American Enterprise Institute, told Xinhua News Agency that the U.S. economy as a whole has performed well this year, with inflation falling and the economy continuing to recover. However, due to factors such as the long lag time and volatility of monetary policy, it is still unclear whether the Fed will be able to ensure a "soft landing" for the economy.