Source: U.S. Bureau of Labor Statistics
The market anticipates monetary easing this year, although it may not occur at the pace anticipated, in the major economies worldwide. In the United States, for example, the Fed, in its latest meeting, projected cuts on the order of -75 basis points in 2024, as indicated by its dot plots chart. Several analysis firms suggest that the first interest rate cut may occur in March, but we believe it will take longer, happening at the meeting on April 30 and May 1.
Let's observe some important data that influences the decision-making of members of the American central bank. Despite inflation continuing to converge towards the 2% target, which is very positive, the labor market remains highly resilient, with real gains of 0.8% between December 2022 and December 2023. Also, the strong restrictive monetary policy has not pressured unemployment, which has stayed stable below 4%.
The American central bank may assume a risk by implementing an interest rate cut too early, potentially unanchoring market expectations. Also, the positive economic results and the resilient labor market also do not provide incentives for an interest rate cut in March.
Another relevant factor causing concerns for American monetary authorities is the escalation in the Red Sea, where new developments arise every week and are already impacting maritime transportation costs. Despite being volatile and beyond the control of monetary policy, they pose an additional challenge in price control.
Therefore, it is important to observe the language that will be adopted in the next communication from the Fed, which may provide clear guidance on when the interest rate cut will occur. If it indeed takes place in March, this signaling is likely to happen in the meeting on January 30-31.
