Inflation in the US is dropping faster than what the rate-setters had expected 3 months ago

 US Fed finally flags end of hikes, sees lower rates in '24

Inflation in the US is dropping faster than what the rate-setters had expected 3 months ago

Central Bank Holds Rates | 75 Bps Cuts Expected Next Year

SHIFT IN TONE, OUTLOOK AFTER LONG PAUSE

 The Federal Reserve held interest rates steady on 13^th December 2023 and signalled in new economic projections that the historic tightening of US monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024

In a new policy statement, US central bank officials took explicit account of the fact that inflation "has eased over the past year", and said it would watch the economy to see if "any" additional rates hikes are needed implying directly that, after months of ag gressive tightening and a bias towards moving rates higher, they may not need to move higher again.

Indeed, a near unanimous 17 of 19 Federal Reserve officials project that the policy rate will be lower by the end of 2024 than it is now with the median projection showing the rate falling three-quarters of a percentage point from the current 6.25-6.5% range. No officials  see rates higher by the end of next year.

For an institution that has been reluctant to declare victory over inflation that spiked last year to a 40-year high, the updated pro jections and new statement mark a notable shift in tone and outlook.

Headline personal consumption expenditures inflation is seen ending 2023 at 2.8%, and falling further to 2.4% by the end of next year, within striking distance of the Fed's2% target. That co mes at little comparative cost in terms of higher job lessness, with the unemployment rate seen rising from the current 3.7% to 4.1%, the same rate projected in September while economic growth is seen slowing from an estimated 2.0% this year to 1.4% over 2024.

While officials remain free to raise the Fed's bench mark overnight interest rate again in coming months if inflation resurges, that seems increasingly unlikely given the recent perfor mance of inflation that has edged steadily towards the central bank's target.

After raising the policy rate by 5.25 percentage points since March 2022 in one of the swiftest Fed reactions to rising inflation, the central bank has now kept the policy rate on hold since July as inflation edges closer to its target.