Discover the key takeaways from the recent monetary policy decisions by the Federal Reserve and the Bank of England. Find out how the Fed’s decision to leave rates unchanged signals a shift in the tightening cycle, while the BoE maintains its stance on keeping rates high. Explore the economic projections, employment reports, and retail sales data that provide insights into the current state of the US and UK economies. Stay informed on upcoming events and market expectations for rate cuts. Stay ahead of the curve with the latest updates on US and UK monetary policy.
Federal Reserve Leaves Interest Rates Unchanged
The Federal Reserve recently announced its decision to leave interest rates unchanged, in line with market expectations. This decision signals a shift in the tightening cycle, as the Fed’s statement indicated the end of further rate hikes.
Fed Chair Powell emphasized the importance of not keeping rates high for too long, suggesting that a rate cut may be on the horizon. The Summary of Economic Projections showed a downward revision to growth and core PCE in 2024, while the unemployment rate remained unchanged. The Dot Plot also revealed a revision to show three rate cuts in 2024, compared to the previous projection of two.
Market expectations are now focused on the timing of the first rate cut, with many anticipating it to occur in the first quarter of 2024.
Bank of England Maintains Interest Rates
The Bank of England recently announced its decision to keep interest rates unchanged, in line with market expectations. Governor Bailey reaffirmed the bank’s commitment to keeping rates high for a sufficient period to return to the 2% inflation target.
While there were expectations of rate cuts, Governor Bailey pushed back against them, stating that it is uncertain whether interest rates have peaked. The latest employment report showed weaker-than-expected wage growth and job losses in November.
Market expectations now point to a potential rate cut in the second quarter of 2024.
US Economic Indicators
The US Consumer Price Index (CPI) came in line with expectations, indicating steady progress in disinflation. This was further confirmed by the US Producer Price Index (PPI), which missed estimates.
The labor market has shown signs of weakening, but recent releases of US jobless claims and non-farm payrolls have been strong. Retail sales in the US beat expectations, reflecting continued consumer spending.
However, the latest ISM Manufacturing PMI fell further into contraction, while the ISM Services PMI exceeded forecasts, indicating expansion in the services sector.
UK Economic Indicators
The UK Consumer Price Index (CPI) missed expectations, providing a welcome development for the Bank of England. The latest PMIs showed the manufacturing sector falling deeper into contraction, while the services sector continued to expand.
The employment report in the UK also disappointed, with lower-than-expected wage growth and job losses in November. Additionally, retail sales in the UK missed expectations by a significant margin, indicating weak consumer spending.
Market expectations now anticipate a potential rate cut by the Bank of England in the second quarter of 2024.
Upcoming Events and Market Expectations
This week, the focus will be on the UK CPI and the US Consumer Confidence reports. Additionally, the latest US Jobless Claims figures and the UK Retail Sales data will provide further insights into the state of the economies.
Market expectations are centered around the timing of rate cuts, with investors closely monitoring economic data and central bank communications for any indications of future policy moves.
