Heading into 2024, investors expected the Federal Reserve to cut interest rates significantly this year due to cooling inflation. But the price increases have been surprisingly persistent, forcing Wall Street to rethink.
Investors and economists are wondering when and to what extent Fed policymakers will be able to cut interest rates – and some are increasingly doubtful that Fed officials will be able to cut them at all this year.
Inflation declined steadily in 2023, but that progress has stalled in 2024. The Fed’s preferred inflation index rose 2.8 percent in March from a year earlier after controlling for fluctuating food and fuel costs, data showed Friday. While that is a significant decline from the peak in 2022, it is still well above the central bank’s 2 percent target.
Persistent inflation has led Fed officials to signal that it may take longer to cut interest rates than they previously expected. Policymakers raised interest rates to 5.33 percent between March 2022 and last summer and have kept them there since. Investors who at the start of the year expected a first rate cut in March have pushed back those expectations to September or later.
Some analysts are even wondering whether the Fed’s next move could be to raise interest rates, which would mark a huge reversal after months of Wall Street largely expecting a rate cut as the Fed’s next move.
But most economists believe it would take a lot for the Fed to reverse course so drastically.
“It’s certainly a possible outcome, but it would require a complete acceleration in the inflation rate,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
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2024-04-26 18:16:27
www.nytimes.com
