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The US Federal Reserve is expected to lower its key interest rate by 25 basis points in November, despite rising inflation, according to Thomas Gitzel, Chief Economist at VP Bank. He notes that the key interest rate remains above inflation, providing a comfortable position for monetary authorities. Rents continue to drive inflation, but core inflation may decrease next year due to base effects, although potential punitive tariffs from Donald Trump pose a risk.
US inflation rose slightly from 2.6% to 2.7% in November, while core inflation remained steady at 3.3%. Despite this increase, the Federal Reserve is expected to proceed with a 25 basis point interest rate cut, as the key interest rate remains above inflation levels. Rents continue to drive price increases, with used car prices also contributing negatively, though airline ticket price growth has slowed. Looking ahead to 2025, core inflation is anticipated to decline, although potential punitive tariffs could introduce new price pressures.
The US labor market shows signs of slowing job growth, with an expected interest rate cut of 0.25 percentage points to a range of 4.25 to 4.50 percent in December. Despite a decline in labor demand, layoffs are manageable, allowing the Federal Reserve to continue easing rates.
In November, the US economy added 227,000 jobs, but the unemployment rate rose to 4.2%. This job growth was influenced by previous disruptions from hurricanes and strikes, suggesting a more moderate underlying trend of approximately 120,000 jobs. Average hourly wages increased by 4% year-over-year, indicating stable wage growth without signs of overheating, leading to expectations of further interest rate cuts by the Fed in December.
Inflation saw a slight increase in November, rising to 0.7% year-on-year from 0.6% in October, despite a 0.1% monthly decline. Key factors included falling prices in hotels and international holidays, while residential rents and air fares increased. Core inflation remained stable at 0.9% year-on-year, with forecasts for 2024 likely to be revised downwards.
Switzerland's inflation rate rose slightly from 0.6% to 0.7% in November, yet disinflationary trends persist, with prices excluding rents increasing by only 0.1% year-on-year and imported goods prices falling by 2.3%. A 0.1% monthly decline in prices reflects lower costs in hospitality and vehicle sectors, while rents and air travel saw increases. The Swiss National Bank is expected to cut interest rates further in December, with potential for a zero or negative rate by December 2025 if inflation remains low.
The zero interest rate policy is nearing implementation, with inflation at 0.6 percent prompting expectations of three interest rate cuts, according to Thomas Gitzel, Chief Economist at VP Bank. Karsten Junius from Bank J. Safra Sarasin predicts a key interest rate of 0.25 percent by June 2025, with the possibility of reaching zero rates shortly thereafter. This scenario suggests a total of four cuts of 0.25 percentage points in the coming months.
US President-elect Donald Trump's announcement of 25 percent punitive tariffs is a significant shift in diplomatic strategy, linking immigration issues with economic policy, particularly concerning Mexico and Canada. Economist Thomas Gitzel warns that this approach prioritizes punishment over negotiation, potentially signaling a broader economic confrontation with Europe amid existing transatlantic tensions.
Germany's GDP growth for the third quarter has been revised down to 0.1%, following a 0.3% decline in the previous quarter. The slight growth is attributed to increased private and public consumption, while fixed asset investments fell by 0.2% and exports dropped significantly by 1.9%. Economic uncertainties, including high interest rates and job insecurity, continue to hinder investment and overall growth prospects.
Germany's economy grew by just 0.1% in Q3, narrowly avoiding recession after a 0.3% contraction in Q2. While consumer spending rose, investments fell, and exports declined significantly. The EU Commission forecasts a 0.1% GDP shrinkage next year, with uncertainties heightened by the recent US presidential election.
Thomas Gitzel
People
The information provided herein is generated by experimental artificial intelligence and is for informational purposes only.
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