As widely anticipated, the Federal Reserve (Fed) cut its benchmark interest rate on Wednesday but signalled that more reductions in borrowing costs now depend on further progress in lowering sticky inflation.
During its two-day policy meeting that ended on Wednesday, the Fed lowered interest rates by a quarter of a percentage point, bringing the target range to 4.25-4.5%. The central bank also revised its outlook for rate cuts in 2025, indicating that there will be two reductions, as opposed to the four forecasted in September.
“From here, it’s a new phase and we’re going to be cautious about further cuts,” Fed chair Jerome Powell said at a news conference after the meeting.
Meanwhile, in the UK, inflation rose for the second consecutive month, with prices rising at their fastest pace since March. A report by the Office for National Statistics showed on Wednesday that prices in the UK rose by 2.6% in November, up from 2.3% in October and slightly below economists’ expectations of a 2.7% rise. Core inflation, which excludes volatile categories, like food and energy, rose to 3.5%, below forecasts for a 3.8% increase. Services inflation remained steady at 5%.
Meanwhile, a separate report showed that UK pay growth accelerated to 5.2% in October, potentially fuelling inflation and putting pressure on the Bank of England to resist calls for lower interest rates.
Finally, a report by the Commerce Department released on Wednesday unexpectedly showed the downtrend in US housing starts persisting in November. However, the report also showed a much bigger-than-expected surge in building permits. Housing starts in November were at a seasonally adjusted annual 1,289,000 units, that is, 1.8% below the revised October estimate of 1,312,000 units and 14.6% below the November 2023 rate of 1,510,000 units.
On the other hand, building permits, a proxy for future housing starts, showed that housing units authorised for construction were at a seasonally adjusted annual rate of 1,505,000 units, that is, 6.1% above the revised October rate of 1,419,000 units but 0.2% below the November 2023 rate of 1,508,000 unit, suggesting that the downturn in activity is temporary.
Moreover, the recent levels of starts and permits do not seem strong enough to satisfy the growing demand of American households for housing units and hence to keep home prices in check.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).