After Wednesday’s FOMC statement, analysts at BBVA now expect the US central bank to raise rates in 2025. They see that the risks of low policy rates for even a longer period remain high.
Key Quotes:
“The change in forward guidance signals that interest rates will remain at the zero lower bound indefinitely and they will remain below neutral even after goals are reached.”
“Based on the latest statement and changes to the committee’s Longer-Run Goals and Monetary Policy Strategy, we have revised our forecast for the policy rates with the first rate increase occurring in 2025. This implies that long-term yields will remain well below historical averages for a prolonged period. Should economic conditions surprise on the upside, the policy rate increase may happen sooner, possibly in 2024. However, given the long-lasting effects from Covid-19, elevated policy uncertainty, and the expected moderate improvement in labor market conditions, inflation and inflation expectations that follow deep recessions, the risk of low policy rates for an even a longer period remain high.”
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