Fynsa
We have talked a lot here about when rates would start to fall and, if so, by how many basis points. In fact, we ourselves have used this space to debate the issue, especially with a fairly divided market and opinions for all tastes. However, these conditions are not the ones prevailing in the world, where, in fact, discussions are focused on how many more increases will be necessary to control inflation. The world's major central banks continue to face this challenge, with all of them maintaining some pace of increases and a position of keeping monetary policy tight for as long as necessary.
In this context, after the June pause, the Fed raised its benchmark rate by 25 basis points at its July meeting, to the range of 5.25%–5.5%, which was in line with market expectations. With this, the Fed Fund Rate (FFR) is at its highest level since January 2001.
Recent signals from policymakers have pointed to the need to maintaining restrictive monetary policy for a while longer, hinting at the possibility of further increases. It should be remembered that, at the previous meeting, the published projections showed that 50 basis points left on the table. The latest decision confirmed the Fed's still restrictive stance, but left unresolved whether there will be further increases or whether the Fed will enter pause mode again.
According to Federal Reserve Chairman Powell, speaking at a press conference following the announcement of the decision, the likelihood of a further increase or a further pause at the next meeting in September will depend on how the data evolves. While acknowledging that overall inflation has moved favorably toward the target, he emphasized that there is still a long way to go, that core inflation is still well above the target, and that a single data point does not make a trend. Regarding the labor market, he noted that, although there are signs of fatigue, the figures are still reasonably favorable, suggesting that the current restrictive monetary policy would lead to the achievement of the inflation target with the least possible damage to the economy.
Thus, we believe that as inflation continues to move toward the Fed's target and the labor market continues to adjust to changing macroeconomic conditions, the possibility of a new pause for the September meeting increases. Whether this pause is definitive or temporary will again depend on the figures. In any case, whether or not a further 25 basis point increase is implemented at the next meeting, what seems certain is that the long-awaited cuts will not come until 2024, the year in which the Fed estimates it will reach an inflation level of 2%.
