13 December 2023
If you are covering the Federal Reserve’s decision to hold interest rates, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“The Fed has rounded off the year with a further hold on interest rates, marking the third consecutive meeting at which it has left rates unchanged. The US economy continues to defy expectations, with jobs growth remaining remarkably robust and the economy continuing to expand. However, though annual headline inflation dipped to 3.1% in November, it remains well above the 2% target and core inflation saw an uptick in monthly figures, showing stubborn price pressures are not over yet. This could allow the Fed to maintain its higher for longer stance well into 2024.
“Policymakers will be encouraged that higher interest rates appear to be having the desired impact in terms of bringing headline inflation down, whilst economic growth looks like it will slow into 2024 but potentially avoid outright recession. The strength of the economy and the resilience of the jobs market will have knocked hopes of investors who had been holding out for rate cuts to begin early next year, although economic resilience is of course no bad thing.
“Data points are moving in the right direction for now, but the Fed still has a tricky path ahead. It will be keen to continue bringing inflation down but must strike the right balance in doing so without damaging the economy and causing large numbers of job losses. It therefore looks increasingly likely that rates will remain at this level until nearer the second half of 2024.
“All eyes now move to the Bank of England and European Central Bank, who will likely use the Fed as a benchmark and follow suit with rate holds tomorrow. However, following on from signs that the UK and European economies are weakening more significantly, they will remain under more pressure to cut sooner rather than later. In the US, the Fed funds target rate has been held for now, but there is still a way to go before any cuts are likely to materialise and central bankers have reserved the right to hike once more should the data deem it necessary, so the journey is not over yet.”
