The U.S. Federal Reserve forecast to increase interest rates by a further 25 basis points at its following policy meeting in September, but market pricing indicates that the central bank will begin cutting rates in 2024.
Thursday afternoon’s release of the U.S. consumer price index for July will be intently monitored by traders for clues about the Fed’s future rate trajectory.
According to a Dow Jones consensus estimate, economists anticipate that Thursday’s headline CPI will be 0.2% month-over-month and 3.3% annually.
As a consequence of higher gas prices, this is a modest increase from June, but it is well below the four-decade high of 8.5% set a year ago.
Rate Cuts Unlikely in Near Term, US in Decent Position to Avoid Recession
The core inflation rate, which excludes volatile food and energy prices, is expected to reach 4.8% annually in July. The core reading has remained consistently well above target in the euro zone and the United Kingdom, prompting central bankers to reaffirm their commitment to maintaining high interest rates for as long as it takes to bring inflation to their respective 2% objectives.
O’Neill, senior adviser at Chatham House and former chair of Goldman Sachs Asset Management, concurred that rate cuts were likely to be delayed for a significant period of time, as did policymakers.
O’Neill also indicated that the U.S. is in a decent position to avoid a recession, citing the stability of inflation expectations.
In fact, the next turn of events will be more favorable for Europe than for the U.S., given that the U.S. has recently experienced a number of positive developments while Europe is just beginning to experience them.