Interest rates in the US are likely to ease in December and stop rising next year as inflation is set to decline and the labour market starts to cool off.
The US Federal Reserve will convene in December, the final meeting for the year, and is expected to deliver another round of increase, but this time, the adjustment will be lower at half a percentage point, according to Julius Baer.
“We continue to expect the Fed to stop hiking rates in 2023 on the back of a faster-than-expected inflation decline, a cooling of the labour market, and slowing credit activity,” said David Kohl, Chief Economist of Julius on Thursday.
Based on the latest minutes, Kohl said the Fed will likely raise the rates by 50. The Fed has so far been aggressive with rate adjustments this year by delivering four consecutive hikes of 75bps in a bid to stem inflation.
Christopher Waller, the Federal Reserve Governor, said last week that he is open to imposing a lower interest rate increase.
Kohler noted that the minutes of the November FOMC meeting did give strong hints that the pace of hiking rates will slow at the coming meeting in December.
“The minutes reveal that a substantial majority of FOMC participants agreed that a slower pace of hiking would likely soon be appropriate,” Kohler wrote in a note.
“FOMC participants acknowledge the uncertainty around the lags and magnitude of the effects of policy tightening on economic activity and inflation being the main reason to switch to a more modest pace,” Kohler said.
Several members of the committee also highlighted that the wage growth and rents were already moderating.
“[However], this slowdown would take time to flow through to personal consumption expenditure (PCE) shelter inflation,” Kohler said.
Inflation in the UAE and other emerging markets are poised to fall consistently next year, according to a new report.
(Reporting by Cleofe Maceda; editing by Seban Scaria)