Economy
Investors expect FED rate cuts in 2023
Should we expect FED rate cuts in 2023? U.S. Federal Reserve (Fed) officials say it’s too early to think about cutting interest rates this year, while investors are becoming increasingly convinced that the regulator will do just that, The Wall Street Journal writes.
Where this clash of opinions will ultimately lead to is likely to be one of the biggest questions facing financial markets in 2023.
How many FED rate cuts in 2023? Many fund managers believe that inflation has already peaked and that price pressures will drop so rapidly that the Fed will reverse course and cut rates several times by the end of this year, as it already did in 2019, just seven months after the last increase. Positive trends will positively affect all markets, including Ultra T-Bond.
At the same time, Fed officials are pushing a very different view, saying that the current situation is different from the past because the inflation rate is significantly higher.
U.S. consumer prices (CPI) rose 6.5 percent in December compared to the same month last year, the Labor Department said Thursday. Thus, inflation slowed from 7.1% in November, the lowest since October 2021. Consumer prices fell 0.1% from the previous month, the first month-over-month decline since 2020.
Signs of slowing inflation fueled expectations that the Fed would move to cut rates as soon as the second half of this year. Derivatives traders estimate a 90% chance that the Fed will raise rates two more times in 2023, and that they will be around 4.9% by March, according to CME Group. They estimate a 60% chance that the Fed will then cut rates at least once before December.
At the December meeting, Fed officials predicted that interest rates would continue to rise through the spring, to about 5.1%. None of them talked about plans to lower the key rate this year.
Investors who expect U.S. interest rates to fall this year risk serious losses if they are wrong, the WSJ noted.
Indicator S&P 500 index soared by 11% from its October low, and most of its growth is associated with expectations that the Fed will change course, moving from rising rates to lower them this year. Meanwhile, the 10-year U.S. Treasuries yield was at 3.455% on Friday, up from an October peak of 4.231%.
Earlier, we reported that Goldman forecasts U.S. home prices to be down 25 percent from their peak levels.
© 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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