BUSINESS-ECONOMY
After a third consecutive interest rate cut, Federal Reserve officials brought inflation worries back to the forefront as 2024 came to a close. The Fed did what markets expected Wednesday. But that didn't stop investors from dumping risk assets in droves. Chair Jerome Powell bluntly said the Fed's inflation forecast for the remainder of the year has "kind of fallen apart." After nearly four years of failure, officials now anticipate that inflation will take far longer to attain their 2 per cent objective. Powell said that any changes would depend on continued success in reducing price rises, and thus, they lowered their expectations for rate decreases next year. After viewing a weakening labour market as the bigger threat in September, policymakers have shifted their stance to place a higher emphasis on inflation. However, new data and Trump's policies have rekindled worries that inflation will remain stubbornly high, beyond the central bank's 2 per cent target. Policymakers now only expect two rate cuts next year, which is half the number of reductions predicted in September. Jerome Powell, the US Federal Reserve chair, said and I quote, "So I would say today was a closer call. But we decided it was the right call because we thought it was the best decision to foster achievement of both of our goals, maximum employment and price stability. We see the risks as two-sided, moving too slowly and needlessly undermine economic activity in the labour market, or move too quickly and needlessly undermine our progress on inflation. So, we're trying to steer between those two risks, and on balance, we decided to go ahead with a further cut. And I'll give you some details on why. Downside risks to the labour market do appear to have diminished, but the labour market is now looser than pre-pandemic, and it's clearly still cooling further so far in a gradual and orderly way. We don't think we need further cooling in the labour market to get inflation down to 2 per cent." The market's reaction to the Fed's revised forecast was rapid and severe. The US dollar surged to its best level in over two years while Wall Street stocks and the US Treasury fell. Despite being marginally higher before the announcement, the S&P 500 index had its worst "Fed day" since March 2020, plunging 3 per cent. Fed's hawkish bias jolted Asian markets, with regional stocks and currencies tumbling. South Korea's won fell to its weakest level since the financial crisis. The ringgit hit its weakest level against the dollar since August, while the Thai baht also fell. Speculative assets, including bitcoin, retreated, and the price fell below 100,000 dollars. The digital asset fell about 1 per cent to 99,800 dollars. That followed a 5.1 per cent drop on Wednesday, the biggest retreat since September. (With inputs from the agencies) A journalist, writing for the WION Business desk. Bringing you insightful business news with a touch of creativity and simplicity. Find me on Instagram as Zihvee, tr None
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