Welcome back to MarketSense. In this weekly newsletter, we give you the most important need-to-knows from the latest developments in the US economy, the fed’s key decisions, and forecasted investment trends.
Interest Rates Unchanged
- The Federal Reserve maintained its benchmark interest rate, taking a pause in its strong stance against inflation.
- The Central Bank projects another rate increase this year but anticipates a decrease in 2024.
- The U.S. economy is predicted to grow at 2.1% in 2024, doubling the prior projection of 1%.
- Although reduced from last year’s 9% peak, current inflation rates are still over the Fed’s target.
- Fed Chair, Jerome Powell, stated that continued effort is required to stabilize inflation at the 2% level they are aiming for.
Impact of Rate Decisions
Interest rates influence everything from consumer spending and borrowing to investments and the cost of capital for businesses. By maintaining a consistent interest rate, the Federal Reserve is essentially providing a period of stability. This stability serves a dual purpose:
Evaluative Phase: Keeping rates stable gives policymakers and economists a clearer view to study the consequences of prior decisions. When rates are frequently adjusted, it’s a lot more difficult to understand the effects of any one change. A stable period can be likened to letting the dust settle after a series of changes, allowing a clearer view of the landscape.
Data Collection: A consistent rate creates a more controlled environment for collecting and analyzing economic data. This can be especially valuable during periods of uncertainty, ensuring that new policy decisions are based on reliable and relatively ‘noise-free’ data.
Overview of U.S. Economic Health
Despite challenges, the U.S. economy has shown plenty of resilience. The general feeling is one of optimism and a belief that inflation can be addressed without prompting a recession.
Recent data shows that inflation has increased for two consecutive months and oil prices have risen, both posing threats to inflation control.
But, there is also plenty of data indicating stability. 187,000 jobs were added to the labor force in August, and the unemployment rate is close to a 50-year low at 3.8%.
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