After three straight hotter-than-expected inflation reports, Federal Reserve officials have turned more cautious about the prospect of interest rate cuts this year.
Federal Reserve Board chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, March 20, 2024. The Federal Reserve wraps up its two-day policy meeting on Wednesday, May 1, 2024. Most analysts expect that the central …WASHINGTON — The big question, after they end their latest policy meeting Wednesday, will be: Will they still signal rate cuts at all this year?
Most economists say they still expect two cuts this year. But many acknowledge that one or even no rate reductions are possible. The reason is that elevated inflation is proving more persistent than almost anyone had expected. According to the Fed’s preferred gauge, inflation reached a 4.4% annual rate in the first three months of this year, up from 1.6% in the final quarter of 2023 and far above the Fed’s 2% target.
“If higher inflation does persist,” the Fed chair said, “we can maintain the current level of for as long as needed.” If Powell avoids repeating that sentiment this time, it could suggest that the Fed is less likely to reduce its benchmark rate this year. That persistent strength has caused some Fed officials to speculate that the current level of interest rates may not be high enough to have the cooling effect on the economy and inflation that they need. If so, the Fed could even have to switch back to rate increases at some point.
The Fed is now allowing $95 billion of those securities to mature each month, without replacing them. Its holdings have fallen to about $7.4 trillion, down from $8.9 trillion in June 2022 when it began reducing them.
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