Federal Reserve reiterates that rates will remain high
KUWAIT: At their most recent meeting, US Federal Reserve officials showed that there is no desire to cut interest rates anytime soon, especially when inflation is still above their targeted 2 percent level.
The committee members still worry that inflation could be sticky and might move higher, and that more may need to be done. In addition, the minutes revealed that members feel they should proceed cautiously and base their judgments on the entirety of incoming information and its implications for the economic outlook as well as the balance of risks. However, the minutes did not indicate that the members even discussed lowering rates, which was reflected in Chairman Jerome Powell post meeting news conference as he stated that, “the Committee is not thinking about rate cuts right now at all.”
Revised UoM consumer sentiment
In the US, consumer sentiment fell for the fourth month in a row, reaching 61.3 in the month of November, down from 63.8 in October. The dip indicates that despite the recent downturn, consumers are still expecting inflation rates to increase in the upcoming months, with expectations of it reaching levels of around 4.5 percent within the next 12 months, and 3.2 percent in the next 5 years. The data published by the University of Michigan shows mixed signals regarding different age groups among consumers, with young and middle-aged consumers showing strong declines in economic attitudes. Joanne Hsu, the director of the survey, mentions that consumers have been more negative this year than their actual behavior with regards to the current economic situation.
US unemployment claims
The US labor market is proving to be more resilient than expected, after unemployment claims dropped to 209,000 from 233,000 previously. Expectations were for the print to come in at 226,000 claims. Furthermore, in another sign of a resilient labor market, continuing claims dropped to 1.84 million, down by 22,000 from the previous reading. Despite a historic tightening cycle by the Fed, job growth remains strong while unemployment remains historically at the low end. Meanwhile, inflation dropped from a peak of 9.1 percent to 3.2 percent last month. It is wildly expected by markets that the Federal Reserve will end the year holding rates steady. The US Dollar index closed the week at 103.403.
Europe
ECB speakers
In a speech given by ECB’s president Christine Lagarde, she stated that it is too early to “start declaring victory” in ECB’s fight against inflation. Lagarde added that the current downward pressure on inflation was a result of unwinding in energy prices and a shock in supply, which accounted for two thirds of inflation surge. Lagard added that while the current interest rates are seen as sufficient to bring inflation back to 2 percent, it is expected for a small rise in inflation to occur in the upcoming months, after bringing it down from 10.6 percent in January to 2.9 percent in October.
Eurozone PMIs
The latest readings to come out showed slight hope for the Eurozone’s largest economy, Germany. Both manufacturing and services showed an increase from their previous readings giving confidence to the idea that economic growth is plausible in the near future. Despite the positive readings, German PMIs remain in contraction territory. Over in France, output declined for the 6th consecutive month, mainly a result of weak domestic and overseas demand. As manufacturers are laying off workers, along with a highly anticipated Q4 decline, a rise in unemployment is also upon us. Unlike Germany, there seems to be no glimmer of hope for the French economy as it appears to be at a dead-end. As for the Eurozone as a whole, both the manufacturing and services sectors continued to contract, signaling a second consecutive quarter of shrinking GDP. Wages have also been increasing rapidly along with output prices at an unusual high rate, proving that inflation is still lingering in the Eurozone and is unlikely to significantly decrease in the near future. The EUR/USD currency pair ended the week at 1.0939.
United Kingdom
BoE speakers
Bank of England’s governor Andrew Bailey spoke on Monday, stating that the possibility of rate cuts is far too early, and that an increase in borrowing costs is still on the table if inflation persists. The speech comes following a second hold in interest rates, after 14 consecutive hikes which led inflation rates to drop from 11 percent in October of 2022, to 4.6 percent in October of 2023. However, policy makers remain cautious regarding their approach in fighting inflation. Additionally, Bailey added that the pressure on incomes due to higher food and energy prices may be the reason for wage demands.
PMIs
The latest PMI news to come out show that the UK has finally left contraction territory and entered expansion territory when it comes to services. The Bank of England’s decision to pause interest rate hikes, along with a clear slowdown in headline inflation have helped support business activity. The services PMI was strengthened by corporate budgets for technology as well as general spending on essential business services. The manufacturing PMI similarly increased to 46.7 from 44.8 previously, although the PMI still remains in the contraction territory. The GBP/USD currency pair closed the week at 1.2603.
Asia Pacific
Australian Monetary Policy Meeting Minutes
The Head of Australia’s national bank spoke last week, following the recent hike in interest rates, marking a 12-year high of 4.35 percent. Furthermore, members of the RBA expressed concerns regarding businesses passing on higher costs on to consumers, leading to higher pressures on households and contributing to higher inflation. The aussie strengthened following the release, with the AUD/USD pair spiking from early November’s levels 0.6370 all the way to the current trading price of 0.6582.
Kuwait
Kuwaiti Dinar
USD/KWD closed last week at 0.30810.
