The basic interest rate in the United States remains between 3.5% and 3.75%, with the next Federal Open Market Committee (FOMC) meeting scheduled for April 28, 2024. According to data from the Chicago Mercantile Exchange (CME) FedWatch, there is a 97% chance that the rate will be maintained at this level at the next decision.
Furthermore, 2.6% probability indicates a possible increase of 25 basis points. This expectation is associated with the annual inflation rate for March 2024, which registered 3.3%, mainly pressured by the rise in gas prices. Thus, the current inflation remains above the 2% target set by the Federal Reserve (Fed), reducing the chances of interest rate cuts.
On the other hand, the U.S. labor market has shown stability, with the unemployment rate at 4.3% in March and an increase of 178,000 jobs in non-farm sectors. This scenario contributes to maintaining the outlook for continuity in interest rate policy, since employment strength helps avoid sharp economic slowdowns.
However, tensions in the Middle East worsen the global economic scenario. Iran declared it has laid mines in the Strait of Hormuz region, in the Persian Gulf, an area responsible for approximately 20 million barrels per day, or about 20% of the world’s oil supply. This action raises risks for maritime transport and has caused oil price increases.
The Vice President of the United States, JD Vance, reported that Iran denied the terms proposed in recent peace negotiations. The betting platform Polymarket projects June 30, 2024, as the most likely deadline for a formal agreement between the parties. Meanwhile, volatility in the financial market remains high.
Consequently, recent speeches by Fed members and other international monetary institutions have not indicated clear changes regarding future monetary policy decisions. Specialists highlight that fluctuations in investor expectations about Fed actions contradict the goal of predictability and stability expected from these authorities.
Moreover, the unstable market behavior is directly related to the political-economic environment prevailing in the U.S. since the beginning of the Trump administration. Analysts also point to difficulty in anticipating the secondary impacts of the U.S.-Iran conflict on inflation and employment, crucial factors for central bank decisions.
The influence of the crisis in the Gulf region is significant for U.S. monetary policy, mainly due to its effect on global oil prices. It is worth noting that the last FOMC meeting took place weeks before the current focus of the U.S. presidency on the Iranian issue, demonstrating how external factors are entering into the realm of economic decisions.
Finally, the expectation is that the next FOMC meeting, on April 28, will confirm the maintenance of rates, considering the combination of high inflation, stable labor market, and external instability caused by the Middle East conflict. The conclusion of the process still depends on the analysis of the most recent economic data and the evolution of negotiations between the U.S. and Iran, which may influence monetary policy in the coming months.
