US growth of 3.3% in the fourth quarter exceeded all expectations, and because the job is almost done when it comes to lowering inflation, the Fed has “enormous” scope to cut interest rates. ING made the statement on Thursday in response to growth figures from the United States.
According to ING, the strong growth in the final months of the year was mainly due to strong consumer and government spending as well as a positive contribution from exports.
“Based on business surveys, growth is expected to be weaker in the first quarter,” the bank said. The consensus is only 0.6%, but ING assumes 1 to 1.5%.
Meanwhile, the Fed appears to have won the inflation battle, with core PCE inflation reaching 2% for the second straight quarter, matching the central bank's target. The Personal Consumption Expenditures index for December will be released on Friday afternoon.
“Tomorrow's monthly data is also likely to confirm that the monthly increase has fallen below the important 0.17 percent threshold for the sixth time in seven months. This is the percentage we need to achieve in 12 months to reach 2 percent year-on-year,” she said. ING.
So the signals are green for a rate cut, but ING believes the Fed will wait a little longer “to make sure it can really afford a cut.”
ING expects its first rate cut in May. The bank believes the Fed will cut interest rates by a total of 150 basis points this year.
According to the Federal Reserve, the neutral interest rate will be around 2.5 percent. This means the interest rate could eventually be cut by 300 basis points, ING said.
Update: To add more information.
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