Take Two: Fed likely to cut rates gradually; Eurozone inflation rises
- 02 December 2024 (3 min read)
What do you need to know?
Federal Reserve officials were divided over how much they may need to cut interest rates going forward, their latest meeting’s minutes showed. Despite progress in easing inflation and a solid labour market they called the outlook “uncertain”, suggesting monetary policy would be eased “gradually”. Some officials indicated they could pause cuts if inflation remained above target, while others felt faster cuts may be warranted if economic activity faltered. Meanwhile, US third quarter (Q3) GDP growth increased at an annual rate of 2.8%, an official second estimate confirmed, compared to 3% in Q2. The expansion primarily reflected greater consumer and government spending, among other factors.
Around the world
Eurozone annual inflation rose to 2.3% in November from 2.0% in October, according to an official flash estimate. While in line with market forecasts, the level exceeded the European Central Bank’s (ECB) 2% target for the first time in three months. Core inflation, which excludes the more volatile components of energy, food, alcohol and tobacco, was unchanged at 2.7%. The ECB is expected to lower interest rates by 25 basis points when it meets on 12 December, according to market forecasts.
Figure in focus: 25%
US President-elect Donald Trump pledged new trade tariffs on Mexico, Canada and China after he is sworn into office on 20 January. He plans to introduce a 25% levy on all products from Mexico and Canada, with China enduring an extra 10% “above any additional tariffs”. The announcement reignited concerns over a trade war. Notably, South Korea surprised markets by cutting its key policy rate for a second consecutive time, citing concerns over Trump’s incoming trade policies. Elsewhere, ECB policymaker François Villeroy de Galhau said Trump’s policies may have a "relatively limited" effect on European inflation but could have an impact on long-term interest rates.
Words of wisdom
Doughnut economics: A framework for sustainable development created by economist Kate Raworth in 2012, that combines the planetary boundaries the earth needs to stay within to thrive with social boundaries such as access to food and water, jobs and education – with the two rings resembling a doughnut. In terms of future sustainability, a new climate finance deal was agreed at the United Nations annual COP29 summit, which promised $300bn per year by 2035 to support developing countries. However, this fell far short of the $1.3trn called for to combat the effects of the climate crisis, leaving many disappointed in the conference outcome.
What's coming up?
The Eurozone, US, UK, Japan and China report final November manufacturing Purchasing Managers’ Indices (PMIs) on Monday, followed by their services and composite PMIs on Wednesday. Also on Wednesday, Australia posts its Q3 GDP growth. On Friday, the Eurozone also reports its third estimate for Q3 GDP, while the US updates on employment data and the Reserve Bank of India meets to set interest rates.
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