Will American inflation end the war or will the world be stunned?

US Federal Reserve Chairman Jerome Powell

The US Federal Reserve will announce its monetary policy today, i.e. on September 18 at 11:30 PM Indian time. A 25 basis point reduction in interest rates is expected. If this happens, the Federal Reserve will cut interest rates for the first time in four years. However, there is also a debate among experts as to whether the Federal Reserve can also cut the interest rate by 50 basis points. However, their expectations seem rather low. On the other hand, there are many factors that may prevent the US Federal Reserve from cutting interest rates once again. If this happens, the entire world could be stunned. Because there are many countries in the world that are waiting for the US Federal Reserve to cut interest rates so that they can cut their policy as well.

On the other hand, apart from the health of the country’s economy and inflation, markets are also awaiting information related to employment. The speech of the Chairman of the US Federal Reserve, Jerome Powell, may also affect the sentiment of the domestic and global stock markets.

Pace 360 ​​co-founder and global chief strategist Amit Goyal said in a press report that at the September meeting, the Federal Reserve will cut interest rates for the first time since 2020. The Federal Open Market Committee (FOMC), the policymakers of the Federal Reserve, has not made any changes to interest rates after July 2023. The main question in the market is how much and how often the Fed will cut interest rates. He said that we expect a rate cut of 25 basis points. However, there are many factors that can influence the decision to cut the rate.

These factors can affect the decision.

1. American inflation: Currently, inflation data in the United States is considered positive. Due to the increase in accommodation and travel costs, its impact was definitely seen in August. Therefore, the possibility of an interest rate cut by the US Federal Reserve at the monetary policy meeting was reduced. According to the Department of Labor, the US CPI fell to 2.5 percent in August compared to the same month last year, down from 2.9 percent in July, which is the lowest rate since February 2021.
2. Unemployment rate: In August, the US unemployment rate fell slightly to 4.2 percent from 4.3 percent in July. However, this is much higher than the record low of 3.4 percent recorded in April 2023. Although the US Federal Reserve has managed to bring inflation close to its 2 percent target, the rising unemployment rate remains a cause for concern.
3. Manufacturing sector: The US manufacturing sector contracted for the 11th time in the past 12 months, indicating a decline in overall output and demand. The ISM manufacturing PMI was recorded at 47.2 in August. In August, US factories saw a significant increase in output due to a surge in motor vehicle production. However, last month’s figures were revised downwards, indicating that the manufacturing sector had largely stabilized. Factory output rose 0.9 percent in August, according to the Federal Reserve, following a revised 0.7 percent decline in July.
4. Job opportunities: Job openings data is tied to the unemployment rate. An increase in job openings indicates economic expansion, while a decrease indicates a cooling labor market. Recent data shows that job creation in July was at its lowest level since January 2021, when the Covid-19 pandemic was at its peak. Only 142,000 jobs were added to the US economy in August, far fewer than expected. Economists now believe that the likelihood of a 50 basis point rate cut has increased.