Experts expect the Fed to 'freeze' interest rates at its upcoming meeting

A string of positive economic data has raised hopes that the Fed will soon achieve its goal of a "soft landing" - reducing inflation and not pushing the world's largest economy into a severe recession.

Thị trường kỳ vọng Fed ‘đóng băng’ lãi suất trong cuộc họp sắp tới

There are still many unknowns about how the Fed will shape its policy outlook next year. (Source: CNBC)

Markets are widening expectations that the US Federal Reserve will keep interest rates, currently at a 22-year high, at its policy meeting on December 13. If this happens, it will be the third consecutive time the Fed has “frozen” interest rates. Most investors believe this is a near-certain scenario. The hottest issue now, debated by most markets and analysts, is when the US monetary policy authority will start cutting interest rates, for how long and how fast.

Gregory Daco, chief economist at EY, said it was almost certain that there would be no further rate hikes. However, there are still many unknowns about how the Fed will shape its policy outlook next year.

In recent statements, Fed officials have continued to warn that interest rates will continue to rise until the dual goals of bringing inflation to the 2% target and addressing unemployment are achieved. Fed Chairman Jerome Powell said it was too early to announce a halt to rate increases, nor was there enough basis to speculate on when monetary policy might be loosened.

According to the report of the US Department of Labor on December 8, the number of jobs in the non -farm sector increased by 199,000 in November 2023, higher than the increase of 150,000 in the previous month. Low unemployment rate, stable job creation has brought positive signals of economic growth and reduced inflation. In October 2023, the US consumer price index (CPI) was 3.2%, down from the peak of 9.1% during the pandemic period.

The string of positive economic data has raised hopes that the Fed will soon achieve its goal of a “soft landing” – reducing inflation and not pushing the world’s largest economy into a severe recession. Traders in futures markets believe there is a more than 98% chance the Fed will leave its interest rate decision unchanged at this week’s meeting, according to data from the Fed Watch tool.

But the timing of the rate cut remains a contentious issue. “The discussion around monetary policy normalization will become more active next year as progress on falling inflation continues,” economists at Deutsche Bank wrote in a recent market analysis report.

The US economy appears to be slowing in the final quarter of 2023, the Fed chairman said, noting a “cooling” in the labor market. He added that the Fed is on a path to bring inflation down to 2% without leading to rising unemployment.

Cutting inflation while avoiding a recession — often called a “soft landing” — is a difficult challenge, but the Fed has recently suggested it may be on track to do so.

Austan Goolsbee, an official at the Federal Open Market Committee (FOMC), also shared Mr. Powell's view that the Fed is aiming to meet its dual mandate of controlling both inflation and unemployment. However, Mr. Goolsbee warned that policymakers should not be complacent and need to be alert.

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