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As the US Federal Reserve prepares for its upcoming policy meeting, all eyes are on the decisions that will be made regarding interest rates. Experts widely predict that the Fed will maintain its benchmark rate at 5.25-5.50%, its highest level in 23 years. The decision was taken against a backdrop of persistent inflation and mixed economic indicators. Let’s explore five key factors that will influence the Fed’s policy decisions.
1. Strong job market
The labor market plays an important role in the Fed’s decision-making process. Recently, the Department of Labor reported that the US created more jobs than expected in May. Specifically, nonfarm payrolls increased by 272,000 jobs, while government payrolls increased by 43,000 positions. Additionally, the professional and business services sector added 32,000 jobs. Average hourly earnings also increased, rising 0.4% in May compared with a slower 0.2% in April. Over the past year, wages have increased 4.1%, reflecting a strong job market strong. However, the unemployment rate increased slightly to 4% in May from 3.9% in April.
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2. Strong growth indicators
The World Bank recently raised its 2024 global growth outlook due to the strong performance of the US economy. The US growth forecast for 2024 is now at 2.5%, in line with the 2023 pace and significantly higher than the January forecast of 1.6%. These strong growth indicators suggest that the Fed can keep interest rates higher for longer to ensure the economy continues to grow steadily without overheating.
3. Persistent inflation trend
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Inflation remains a major concern for the Fed. Despite efforts to control, inflation continues to exceed the Fed’s 2% target. In April, the US personal consumption expenditures (PCE) index, the main measure of inflation, rose 0.3%. On a year-over-year basis, the PCE price index increased by 2.7%, maintaining the same pace as in March. In addition, the US Department of Labor is preparing to release Consumer Price Index (CPI) data for May, which will is an important indicator of the Fed’s decision.
4. Geopolitical tensions
Ongoing geopolitical scenarios, including the Russia-Ukraine war and the conflict in West Asia (Israel-Hamas conflict), continue to pose significant risks. Any escalation in these conflicts could lead to a spike in crude oil prices, further complicating the Fed’s efforts to control inflation. The Fed will have to consider these external risks when making its policy decisions.
5. Market reaction
Market indicators, such as bond yields, play an essential role in the Fed’s considerations. Lately, better-than-expected payroll data and dwindling interest rate cut hopes have kept bond yields high. The Fed will closely monitor these yields because they reflect market sentiment and economic expectations. The Federal Open Market Committee (FOMC), responsible for reviewing U.S. economic conditions, takes these factors into account when formulating its monetary policy.
Economists’ views on the probability of a Fed interest rate cut
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Many economists believe the Fed will not announce any changes to policy rates at its next meeting scheduled for July. Amit Goel, Co-Founder & Chief Global Strategist at Pace 360 , said: “The June meeting will be one of the most important events this year as Federal Reserve Chairman Jerome Powell may give the clearest hint yet on the timetable for interest rate cuts.” . Analysts expect the new dot plot to show two cuts of 25 basis points this year, down from three in the March version.
The role of inflation data
Upcoming inflation data will be a key factor in the Fed’s decision. A Reuters poll showed economists expect consumer price inflation to ease slightly, falling to 0.1% from 0.3% last month. This data will be released shortly before the Fed’s announcement and will provide important insights into current inflation trends.
Impact on global markets
The Fed’s policy decisions have far-reaching impacts, including on global markets. For example, Indian stocks opened higher today thanks to gains in IT stocks, which are sensitive to US interest rate policy. These stocks rose 1.25%, reflecting positive market sentiment ahead of the Fed’s announcement.
Conclusion
In summary, the US Federal Reserve’s upcoming policy decision will be influenced by several key factors, including a strong job market, persistent inflation, geopolitical tensions and reaction of the market. As the Fed aims to balance economic growth with inflation control, all eyes will be on Federal Reserve Chairman Jerome Powell and the insights he provides on cutting interest rates in the near future. future. The results of this meeting will not only impact the US economy but also have important implications for global financial markets.
Source: https://anhngunewlight.edu.vn
Category: Blog