What are the effects of interest rate cuts on the economy in 2023?

###The Possibility of Overturning Predictions in Financial Markets

In the financial markets, there is a prevailing expectation that [FRB] will begin cutting interest rates in early 2024. However, this view may be overly optimistic. In reality, there is increasing uncertainty regarding the timing and scale of interest rate cuts.

###Challenges of Inflation Control

Although the inflation rate is trending downward, it has not reached the Federal Reserve's target of 2%. The rising prices of services are particularly concerning. The Federal Reserve has explicitly stated that "it will not lower interest rates until the inflation rate returns to 2%," and it can be said that the conditions for rate cuts are not currently in place.

###Impact of Trade Policy

The impact of tariffs due to trade friction may not yet be fully reflected in prices. There is a risk that product prices could soar in the coming months, making it difficult to time interest rate cuts.

###Strength of the Employment Market

The unemployment rate remains at a low level, and the rate of wage increases continues to be high. The robust labor market makes it difficult to justify interest rate cuts.

###Future Policy of the FRB

The FRB will carefully decide its policies while monitoring economic indicators. It is required to balance inflation control and support for the economy. There is also a significant possibility that discrepancies may arise between market expectations and actual policy decisions.

###Impact on the Japanese Economy

The monetary policy of the United States has a significant impact on Japan as well. Through fluctuations in the yen-dollar exchange rate and stock prices, it can affect the earnings of export companies and the assets of individual investors. Japanese policymakers are also required to take appropriate measures while closely monitoring the trends in the United States.