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For about two years, hyperinflation has been the focus of events, so the persistent attempts made by central banks to reverse its course have increased, and with the war of central banks on the specter of inflation, it seems that the world is on the verge of reaching a new chapter in this economic narrative.

Currently, interest rates have reached a significant rise, which has contributed to the rise in home loans, credit card rates, and other loans.

This has led to lower inflation; But high interest rates have devastated America’s housing sector, which is on track for its worst year since 1993, slowed job growth, and kept stocks in a flat pattern for 23 months.

For its part, the Federal Reserve Bank expects interest rates to be much lower next year than they are now, which means the possibility of cutting interest rates three times in 2024.

Of course, this reversal of interest rates will have mixed effects on consumers, companies, and investors.

Interest rate cut scenario

If interest rates are lowered, mortgage rates, which have been hovering around a two-decade high of close to 8 percent, are likely to fall, and corporate lending could become cheaper, freeing up corporate profits and making stocks more attractive, which is why… The Dow Jones hit a record high on Wednesday and the S&P 500 was nearing the record it set at the start of 2022.

By raising lending rates, central banks such as the Federal Reserve, the Bank of England and the European Central Bank are trying to slow their economies out of inflation, but this policy has caused lending standards to tighten, pushing the economy into a potential recession.

Although Federal Reserve Chairman Jerome Powell said in a press conference on Wednesday that we are far from a hard landing scenario, a shift to lower interest rates could help soften the blow to the US economy.

He added that cutting interest rates next year would also signal that the Fed believes it has won its uphill battle against inflation, a battle it was so determined to win that it raised interest rates at the fastest pace in history.

Lowering interest rates next March

Goldman Sachs analysts said in a note to clients on Wednesday that they expect interest rate cuts to begin in March and continue throughout the spring, and they also boosted their forecasts for US economic growth as a result of the Federal Reserve’s optimism on Wednesday at the conclusion of its two-day policy meeting.

The last time the Fed cut interest rates was when the economy was slowing in late 2019, and again in the wake of the Covid-19 pandemic, when a global lockdown led to the deepest recession in American history.

Before that, the Federal Reserve lowered interest rates during the global financial crisis.

So, despite consumer optimism, it is important to note that there are risks that may arise from lowering interest rates as well.

2023-12-14 17:47:13
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