The Federal Reserve's September 18, 2024, meeting, like other major meetings this year, will be key to understanding the future direction of U.S. monetary policy. Here are the key points and expectations for the event:
1. Interest rate decision
Hike or Pause? As of September 2024, the Fed may have already been raising rates to combat inflation for the past several years. However, given the data at that point, the Fed may decide to either pause if inflation shows signs of slowing or continue raising rates to cement the results.
What do markets expect? If inflation remains above the 2% target, markets can expect further tightening, leading to higher short-term rates. If inflation slows, the Fed can be expected to pause to assess the impact of its previous measures.
2. Comments on the state of the economy and inflation
Comments from Fed Chairman Jerome Powell or his successor will be important for understanding the overall economic strategy for the rest of the year. The focus is expected to be on:
The inflation rate and how it fits within the Fed's goals.
State of the labour market: Is there continued pressure on wages and inflation due to strong employment?
The impact of previous rate hikes on a slowing economy or possible signs of a recession.
3. Fed Forecasts (Summary of Economic Projections)
In addition to the rate decision, the Fed typically updates its forecasts for the economy, inflation, and interest rates. These forecasts give markets and investors an idea of what to expect in the future:
How the Fed Sees Inflation in 2024 and 2025
Possible changes in rates in the coming years.
GDP and labor market forecasts.
4. Risks to the economy and global factors
The Fed will take into account both domestic and global factors:
Domestic: high property prices, consumption and corporate investment levels, possible debt problems in certain sectors.
Global: the impact of economic policies of other major countries, including China and the EU, on world trade, as well as instability in commodity markets, especially oil and gas prices.
5. Implications for financial markets
Stock Markets and Bonds: Any increase in interest rates could negatively impact the stock market, as higher rates increase borrowing costs for companies and reduce stock returns. Bond markets, on the other hand, could respond positively if the Fed's decision stabilizes the economic outlook.
Cryptocurrencies: The Fed's decision could also impact riskier assets such as cryptocurrencies. Tight monetary policy typically reduces demand for such assets as investors move to safer instruments.
6. Political uncertainty
The 2024 US presidential election could add further uncertainty to economic policy. The Fed will need to balance between maintaining neutrality and responding to political changes. Economic expectations could be elevated by the election campaigns, which could impact the Fed’s decisions.
Possible scenarios:
1. Continued rate hikes: If inflation remains high, the Fed may continue to gradually raise rates to keep inflation under control. In this case, markets may experience short-term volatility, especially in the stock sector.
2. Pause on rate hikes: If data shows inflation is slowing and the economy is slowing modestly, the Fed may pause and allow the market to adjust to existing rate levels.
3. Starting rate cut discussions: If inflation declines significantly and there are signs of a recession, the Fed may consider cutting rates in the future, but this is unlikely in September 2024.
Conclusion:
The Fed meeting on September 18, 2024, will be key to understanding how the Federal Reserve views the current situation with inflation and economic growth. The focus will be on whether the Fed will continue its policy of raising interest rates or take a pause, which could significantly affect financial markets and economic forecasts in the coming months.
