MNI: Fed, ECB Near Rate Peak And Holding Until Late 2024: OECD

The Federal Reserve and ECB are close to peak interest rates, but will need until late next year before they ease up in a global economy facing a fragile recovery and stubborn core inflation, the OECD said Wednesday.

in the United States, the federal funds rate is projected to "peak at 5.25-5.5% from the second quarter of 2023. Two modest rate reductions are projected in the second half of 2024, as core inflation declines towards 2%," the Paris-based group's latest Economic Report said

"Central banks need to maintain restrictive monetary policies until there are clear signs that underlying inflationary pressures are abating," OECD chief economist Clare Lombardelli wrote in the report.

The ECB's main refinancing rate is projected "to peak from the third quarter of 2023 and remain unchanged at 4.25% until the end of 2024," the report said. With reinvestment of Asset Purchase Programme redemptions expected to cease altogether from July, "QT should accelerate, but full reinvestment of maturing Pandemic Emergency Purchase Programme securities is expected to continue to make use of all margins of flexibility to limit financial fragmentation".

"Some economies grappling with stubbornly high core inflation may require additional interest rate increases," Lombardelli said. "However, policymakers must keep a watchful eye, given the uncertainties around the exact impact of the rapid and globally synchronized monetary policy tightening following an extended period of low interest rates."

GROWTH OUTLOOK

Global GDP growth will be well below-average at 2.7% this year and 2.9% in 2024 according to the OECD projection, while core inflation "remains too persistent" across the group at 6.5% this year and 4.5% in 2024.

"The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth," the report said, and financial stability is a prominent downside risk along with the Ukraine war. "Clear communication will be crucial to avoid confusion about the potential conflict between pursuing price stability and financial stability mandates."

OTHER HIGHLIGHTS:

• "China is expected to see the sharpest positive shift in growth between 2022 and 2023 of any G20 economy, largely on account of the lifting of the government’s zero-COVID policy. GDP growth is projected to rise to 5.4% in 2023, and then ease to 5.1% in 2024 as the rebound associated with reopening fades"
• "No further policy rate increases are projected in Canada and Korea, while in Australia and the United Kingdom rates are expected to peak from the second quarter of 2023. In all four cases, moderate rate reductions are projected in the second half of 2024"