After several unexpectedly high inflation readings, Federal Reserve officials concluded at a meeting earlier this month that it would take longer than they previously thought for inflation to cool enough to justify reducing their key interest rate, now at a 23-year high.
Led by lower food and auto prices, inflation in the United States cooled slightly last month after three elevated readings, likely offering a tentative sigh of relief for officials at the Federal Reserve and some borrowers.
The sharp interest rate hikes of the past two years will likely take longer than previously expected to bring down inflation, several Federal Reserve officials have said in recent comments, suggesting there may be few, if any, rate cuts this year.
“If higher inflation does persist,” he said, “we can maintain the current level of [interest rates] for as long as needed.”
Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday in a report that will likely give pause to the Federal Reserve as it weighs when and by how much to cut interest rates this year.
The Fed typically cuts only when the economy appears to be weakening and needs help. But with economic data looking strong – the commercial real estate sector aside – will its policymakers see a need to even cut at all?
With some investors and economists questioning whether the Federal Reserve can make good on interest rate cuts this year, the JPMorgan Chase CEO warned of the possibility of rates rising to 8 percent or higher.
Several Federal Reserve policymakers warned Thursday against cutting U.S. interest rates too soon or by too much in the wake of recent data showing inflation stayed unexpectedly high in January.
While credit conditions are still expected to weaken compared to their strong position in the last few years, bank economists have come to view the situation with more optimism due to better economic growth.
The Fed chair also reiterated that the central bank’s next meeting in March was likely too soon for a rate cut. Most economists think the first cut is likely to come in May or June.
Investors and some economists had been holding out the possibility that the Fed might cut as early as its next meeting in March. That now appears off the table.
An unexpectedly rosy economic picture may have left some Fed officials saddled by uncertainty. Yet they are expected to wait for at least a few months before they start reducing rates.
A top Federal Reserve official said this week that he is increasingly confident that inflation will continue falling, but provided few hints of the likely timetable for Fed rate cuts.
Fed officials concluded last month that inflationary pressures were easing, minutes from their most recent meeting say, but they also felt the economic outlook was uncertain enough that that further hikes were still “possible.’’
The Federal Reserve finds itself in an unusually delicate spot as it considers how much more to try to stimulate an economy that’s still growing and adding jobs but also appears vulnerable.
