October 9, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary Quasar Elizundia expert research strategist at Pepperstone.
“During the recent Federal Open Market Committee (FOMC) meeting held in September, the U.S. Federal Reserve decided to cut its benchmark interest rate by 50 basis points, setting it within a range of 4.75% to 5%. This cut marked the beginning of a monetary normalization cycle, following the highest interest rates in decades. The decision was primarily justified by a perceived better balance between its inflation and employment objectives, although some recent data suggest that, had the central bank had access to more up-to-date metrics, it might have reconsidered the magnitude of this adjustment.
Prior to the September meeting, the labor market had shown signs of weakening, which led FOMC members to take a more aggressive stance to support the economy. Projections presented during the meeting indicated a slowdown in job creation and a slight increase in the unemployment rate. However, the non-farm payroll (NFP) figures released afterward surprised to the upside, with significant job creation and a reduction in the unemployment rate. While these results could have prompted the Fed to act more cautiously, this data was not available at the time of the decision.
In terms of inflation, the Federal Reserve expressed greater confidence that progress is being made toward its 2% annual target, although it remains above the desired level. The central bank’s projections suggest that inflation could continue to decrease gradually, justifying the start of this rate-cutting cycle. Nonetheless, the bank continues to closely monitor labor market conditions, recognizing the importance of this component within its mandates.
The minutes also highlight that the rate cut decision was made to sustain economic growth and prevent further deterioration in employment. The FOMC emphasized the importance of continuing to adjust monetary policy based on incoming data rather than following a predetermined course. Thus, while the Fed has begun to ease its restrictive stance, members noted that any future moves will depend on the evolution of both inflation and the labor market. Additionally, it was noted that the risks to economic activity are tilted to the downside, while inflationary risks are considered relatively neutral.
Finally, the minutes reflect concerns about the risks associated with a potential global economic slowdown and its impact on the United States. In this context, the Federal Reserve will seek to balance its objective of returning to price stability with maximizing employment. As economic conditions normalize, the Fed will adjust its policies gradually, but without losing sight of the challenges that could arise in the coming months.”
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