Economy
Fed holds interest rates steady amid robust economic growth
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The US Federal Reserve (Fed) has maintained its policy interest rate range at 5.25%-5.50% for the second time during its November meeting, according to recent reports. This decision, driven by persistent inflation concerns, comes despite a robust Q3 economic growth and significant job gains. The Fed’s benchmark rate remains at a 22-year high following a series of rate hikes initiated from March 2022 to combat inflation.
Jerome Powell, Fed Chair, noted the time lag in realizing the effects of monetary tightening and refrained from discussing prospective rate hikes. Despite these inflation issues, the U.S. economy demonstrated resilience with a 4.9% Q3 real GDP growth rate, bolstered by increased consumer spending backed by strong employment and wage growth.
Concerns about an economic slowdown are rising as long-term U.S. interest rates reached a 16-year peak of 5% in October, alongside increasing Treasury yields. Uncertainty over U.S. consumer spending also looms due to the resumption of student loan repayments following COVID-19 pandemic suspensions.
David Kohl, Chief Economist at Julius Baer, forecasts that the Fed will keep interest rates unchanged until Q3 2024 due to this robust economic growth and reduced inflation. Kohl highlighted that higher bond yields and weaker equity markets have tightened financial conditions, leading to questions about whether the current monetary policy stance is restrictive enough.
In response to the global economic climate, other central banks have also held their interest rates steady. The UAE’s base rate for overnight deposit facility remains at 5.4%, while Qatar has also kept its interest rates unchanged following the Fed’s decision. Similarly, the European Central Bank has kept its policy rate steady for the first time since June last year, while the Bank of Japan continues with its monetary easing approach.
Despite these measures, mounting interest rates in Europe have induced economic downturns, as evidenced by a 0.4% reduction in the eurozone’s real GDP. Despite this, Kohl expects that softening growth and lower inflation will convince the Federal Open Market Committee (FOMC) that further policy tightening is unnecessary.
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© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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