US FOMC minutes released last week confirmed that US policymakers are unlikely to be hasty in lowering rates. Locally, the South African economy unexpectedly contracted by 0.3% in Q3 2024, driven by a sharp slump in farm output due to drought.
International Market Developments
The US FOMC minutes of the 6-7 November meeting highlighted that policymakers would prefer future rate cuts to be gradual. Policymakers noted that if incoming data were as expected, “it would likely be appropriate to move gradually toward a more neutral stance of policy over time”. The Committee noted the resilience of the US economy at this meeting, and highlighted uncertainty about the neutral rate as a reason for caution, one which complicated the assessment of monetary policy.
US GDP growth registered in line with expectations in Q3:24, coming in at 2.8% q/q (annualised), matching the previous estimate of 2.8% q/q, and after having increased by 3.0% q/q (annualised) in Q2:24. Consumer spending increased in Q3:24 as inflation continued to cool. Core personal consumption expenditure (PCE), the Fed’s preferred inflation gauge, increased by 0.3% m/m in October, matching September’s increase.
The increase in the core PCE measure supports the case for the Fed to adopt a cautious approach to interest rate cuts. Several Fed policymakers recently expressed their preference for a gradual interest rate-cutting cycle. The Fed next meets on 17-18 December and is largely expected to cut the Fed funds rate by 25 bps.
BOE Deputy Governor Clare Lombardelli noted that BOE policymakers are also likely to move forward with interest rate cuts carefully amid wage growth and inflation concerns. Lombardelli added that the UK has made “good progress on disinflation”. However, she noted that “the more persistent components of inflation and uncertainties around how the labour market will evolve are cause for concern”. Lombardelli sees the risks to inflation as broadly balanced.
Local Market Developments
South Africa’s gross domestic product (GDP) decreased by 0.3% in the third quarter, following an increase of 0.3% in the second quarter. The agriculture, forestry and fishing industry decreased by 28.8%, contributing -0.7 of a percentage point to the negative GDP growth. This was primarily due to decreased economic activities reported for field crops amid adverse drought conditions.