Economy Forward

  Article's Background From the beginning of this year, markets have been speculating on the commencement of the Fed's rate cut cycle to ease its monetary policy. The basis is the inflation reaching around 2% target from its peak of 7.1% reported in June 2022. However, the Fed consistently communicated that it had not gained the full confidence on inflation sustainably falling to the 2% target to think of a policy reversal. However, the Fed Chairman at the Jackson Hole Symposium held on last 23 August clearly signaled that the time has now come to dial back the policy (Read the speech here) . The next monetary policy meeting is due on September 17-18. Markets speculate at least 50 bps rate cut at the next meeting and 100 bps rate cut by end of this years. Bank of England and European Central Bank have already started rate cutting cycle with initial 25 bps cut followed by Bank of Canada. Therefore, the purpose of this article is to highlight the nature of the Fed's rate cutt

  Article's Background Except central banks in Japan and China, almost all central banks tightened monetary policies since early 2022 by hiking interest rates competitively as usual. The reason was to control four-decades-high inflationary pressures that erupted from the mid-2021.  The cause of inflation was the reponing of economies from the Corona pandemic with severely contracted supply side due to disruption in global supply chain and capacity shrined by the pandemic. However, central banks read this as being driven by the excess demand created by the lavish printing of money they did at interest rates close to zero during the pandemic.  Such loose monetary policies were justified as policy measures taken to forestall any financial instability that could arise from the high demand for reserves and spending  during the pandemic . Although central banks at the beginning of inflationary pressures  attempted   to label it as transitory, they suddenly started raising interest rates