The U.S. Federal Reserve (Fed) left rates unchanged at the 5.25 to 5.50% range as Fed Chair Powell and company notably cited the need to ensure that rates do not stay overly restrictive for longer than necessary. In the updated projections released by the U.S. central bank, downward revisions were made to the core PCE inflation gauge next year from 2.6% to 2.4%, thereby indicating that the Fed is now more confident with regard to the inflation trajectory. The unemployment rate meanwhile was left unchanged, while 2024 GDP was revised slightly downward.<\/p>\n\n\n\n
These factors point to the Fed\u2019s increased confidence in steering the economy towards a soft landing without having to tank the labor market. While it still remains to be seen if this can actually be done, the US market nevertheless still flew all the way to the moon, with the Dow Jones setting a new record high. <\/p>\n\n\n\n
Based on the projected median 2024 fed funds forecast of 4.60%, this would imply around 3 quarter point rate cuts next year, although the market is currently pricing in double that amount with 6 cuts, an expectation that might be a little too bullish now. With the stage having been set, the focus will now likely be on whether the US can stay true to the promise of a soft landing, or if the 180 degree turn in monetary policy becomes merely the prelude towards a weaker-than-expected economy, especially since the full effects of monetary policy still have not yet been fully felt.<\/p>\n\n\n\n
Now that the Fed has laid down its cards, this would now afford the BSP more leeway to also ease up on its monetary policy. With November inflation having been lower than expected and El Nino projected to end sometime in early 2024, earlier rate cuts could now also be in play for Remolona. This would be all the more instrumental as the current administration strives to meet its 6 to 7% growth forecast for next year.<\/p>\n\n\n\n
Assuming that inflation maintains its current path, we therefore expect the BSP to also start cutting towards the end of 1Q 2024 or the beginning of 2Q 2024. Nevertheless, economic conditions would also be something to watch out for. If the government will not be able to sustain expenditure, then GDP can still produce a disappointing growth figure especially as business expenditure still remains tepid.<\/p>\n\n\n\n