World central banks pause as soft-landing appears imminent

World central banks pause as soft-landing appears imminent

KUWAIT: The US Federal Reserve left its benchmark interest rate unchanged at the target range of 5.25 percent to 5.50 percent, as widely expected by the market. The central bank signaled borrowing costs will likely stay higher for longer after one more hike this year. Twelve out of nineteen Fed officials said that they still expect to raise rates once more this year. Markets are now pricing in two rate cuts next year instead of the previously projected four rate cuts.

Projections also showed that they expect inflation to fall below 3 percent next year and then return to their initial target of 2 percent by 2026. As inflation remains elevated, the overall sentiment given by the Fed was deemed hawkish as they repeated language on ‘extend of additional policy firming.

All in all, the so called “soft landing” was a bit far-fetched three months ago, but now seems within reach. There was no significant change in US business activity as shown in the latest data to come out on Friday. Flash Manufacturing PMI rose from 47.9 previously to 48.9, remaining in contraction territory. Meanwhile, Flash Services PMI dropped slightly to 50.2, allowing the index to remain in expansion territory.

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