The Federal Reserve has concluded its two-day meeting on Wednesday by leaving interest rates unchanged and signaling strongly that there will be a less hawkish stance next year, with the potential for three rate cuts across 2024.
Interest rates were left unchanged at 5.25% to 5.5%, though they remain at their highest in two years. Since March 2022, the Fed has raised interest rates by 525 basis points.
The move was in line with expectations.
Earlier on Wednesday, Treasury Secretary Janet Yellen stated that “inflation is meaningfully coming down” and she saw “no reason why inflation shouldn’t come down to the Fed’s target”. Yellen also noted that the labor market remained “strong, yet cooling”.
Yellen, who appears to be attempting to provide the Fed with a script, said she expected inflation to fall in the range of 2% by the end of next year, and for the Fed to hold rates steady at Wednesday’s meeting.
"So gradually over time, I think people will feel better about the economy," she said, although she said consumers were still conscious of higher prices for rents and other items, Reuters reported.
Despite the scripted nature of Yellen’s statements ahead of the Fed meeting, the former Fed chair said that she would “leave that call to them”, noting: “They have two risks to manage. One is that inflation doesn't come down back to their target as they envisioned, and the other is that the economy becomes too weak."
The U.S. November Consumer Price Index (CPI) rose 3.1% on an annual basis, despite a decline in the cost of gasoline. The uptick was largely driven by increases in rents–another barometer that suggested the Fed was not likely to move to cut interest rates in the near term.
Last Friday, the U.S. labor report showed an acceleration in job gains in November, with unemployment falling to 3.7%, down from 3.9% (a two-year high) in October.
Oil prices were ticking slightly higher on Wednesday at the time of the Fed’s announcement, with Brent crude up 1.5% and West Texas Intermediate (WTI) up 1.38%.
By Charles Kennedy for Oilprice.com
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