interest rate cut Archives

In first cut in 4 years, US Fed slashes…

19 September 2024
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The US Federal Reserve lowered its benchmark interest rate by a half percentage point (50 basis points) on Wednesday, in an aggressive start to a policy shift aimed at bolstering the US labour market.
Projections released following their two-day meeting showed a narrow majority, 10 of 19 officials, favoured lowering rates by at least an additional half-point over their two remaining 2024 meetings.

In first cut in 4 years, US Fed slashes rates by larger 50bps.

The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. Wednesday’s decisive move highlights the growing concern among policymakers over the employment landscape.
“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement, adding that officials are “strongly committed to supporting maximum employment” in addition to bringing inflation back to their goal.
Policymakers pencilled in an additional percentage point of cuts in 2025, according to their median forecast.
Governor Michelle Bowman dissented in favour of a smaller, quarter-point cut, the first dissent by a governor since 2005, and the first dissent from any member of the FOMC since 2022.
In their statement, policymakers said they will consider “additional adjustments” to rates based on “incoming data, the evolving outlook and the balance of risks.” They also noted that inflation “remains somewhat elevated” and job gains have slowed. The central bank raised rates 11 times, bringing its benchmark to a two-decade high in July 2023.
Since then, inflation has cooled considerably and – at 2.5% – is nearing the Fed’s 2% target. And while the labour market has weakened, there’s no clear indication the US economy is in recession or on the cusp of falling into one. Layoffs remain low, consumers are still spending and economic growth is strong.
Still, there are growing signs of strain. Excess savings that helped support Americans in recent years have run dry, and delinquency rates are rising. An increase in job losses could trigger a pullback in spending and slow the economy. The muddied economic picture has increased uncertainty and spurred divisions among Fed officials over the best path forward for policy.
Some are anxious to curb labour-market weakness before it spirals into more pain. Others worry that cutting rates too quickly may reignite demand and keep inflation elevated.

Science & Environment

State Bank of Pakistan slashes policy rate by 200…

12 September 2024
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The State Bank of Pakistan (SBP) reduced its policy rate by 200 basis points to 17.5% on Thursday, as headline and core inflation saw a sharper-than-expected decline over the last two months.

The rate cut will be effective from September 13, 2024.

The Monetary Policy Committee (MPC) of the SBP attributed this decision to falling global oil and food prices and a delay in the anticipated increase in administered energy prices.

The central bank, however, warned of potential risks tied to global economic volatility and domestic energy adjustments, urging a cautious approach to future monetary policies.

Inflation fell to 9.6% year-on-year in August, down from 12.6% in June.

Core inflation also dropped to 11.9%, reflecting improved supplies of food commodities and a reduction in domestic demand.

The MPC expects inflation to continue its downward trend but noted that risks remain, particularly related to the timing and scale of adjustments in energy tariffs and the course of global commodity prices.

The SBP’s foreign exchange reserves stood at $9.5 billion as of September 6, despite weak inflows and continued debt repayments.

Remittance inflows and a rebound in exports helped keep the current account deficit contained at $0.2 billion in July 2024.

While the industrial and services sectors are expected to benefit from this policy easing, the agriculture sector faces challenges due to an expected shortfall in cotton production.

Nonetheless, the SBP maintains its projection for GDP growth between 2.5% and 3.5% for FY25.

The central bank also reported that tax collection in July and August 2024 fell short of the Federal Board of Revenue’s (FBR) target, adding pressure on fiscal policy measures to meet revenue goals for the remainder of the year.

This will be critical for maintaining macroeconomic stability, the SBP noted.

The MPC reiterated that its cautious stance on monetary policy remains necessary to control inflation while supporting sustainable economic growth over the medium term.

Science & Environment

UK inflation holds at 2% but underlying price pressures…

17 July 2024
by admin

British inflation held at 2.0 per cent last month, defying forecasts for a slight fall, and underlying price pressures persisted, maintaining uncertainty about the date of the Bank of England‘s first interest rate cut since 2020.
Economists polled by Reuters had mostly expected headline consumer price inflation would ease to 1.9per cent in the 12 months to June, extending its drop from a peak of 11.1per cent in October 2022.
Inflation for services was much stronger at 5.7 per cent, the Office for National Statistics said, unchanged from May. The Reuters poll had pointed to a slightly weaker 5.6per cent increase.
Sterling rose against the dollar immediately after the data was published.
The BoE – which has a target of consumer price inflation of 2 per cent – has expressed concern about the strength of services inflation, which largely reflects pressure from wage growth in a labour market short of candidates to fill jobs.
Data due on Thursday is expected to show wages growing slightly less strongly than in data published a month ago but still rising by almost 6per cent – roughly double the rate that would be compatible with keeping inflation at 2per cent.
The BoE is due to announce its next decision on interest rates on Aug. 1 and investors see a roughly 50per cent chance of a first cut to borrowing costs since 2020.
A rate cut next month would give an early boost to new Prime Minister Keir Starmer and his finance minister Rachel Reeves who have said they will speed up the slow-moving British economy after winning power in a landslide election two weeks ago.
But last week the BoE’s Chief Economist, Huw Pill, said he was focused on persistently strong price pressures and said the timing of the first rate cut was an open question.
Core inflation – excluding volatile food and energy prices – held at 3.5 per cent in the 12 months to June, the ONS said, matching the median forecast in the Reuters poll.
The BoE had expected headline inflation of 2.0 per cent in June and services inflation of 5.1per cent, according to forecasts it published two months ago. The BoE also expected headline inflation to rise back above its target later this year and through 2025.

Tag: <span>interest rate cut</span>

In first cut in 4 years, US Fed slashes…

State Bank of Pakistan slashes policy rate by 200…

UK inflation holds at 2% but underlying price pressures…