- The Federal Reserve is expected to keep interest rates steady again on Wednesday.
- Some forecasts also don’t see interest rates falling until the second half of the year.
- Powell stressed the importance of having more data before deciding to cut rates.
It’s probably not yet time for the country’s central bank to cut interest rates.
On Wednesday, the Federal Open Market Committee will announce whether it will continue to hold interest rates steady or provide some relief to Americans, and it seems likely it will choose the former – according to the tool CME FedWatch, which estimates market sentiment on Based on the probabilities of interest rate changes, there is a 97.1% chance that rates will remain unchanged Monday morning.
It all depends on the data. Julia Pollak, chief economist at ZipRecruiter, told Business Insider after the jobs report released earlier in April that it was the Fed’s “holy grail: a strong labor market with non-inflationary growth.” “.
This report shows that average hourly wage growth slowed in March, the unemployment rate was not too high, and there was strong job growth, with 303,000 jobs added. In addition to the growth in January and February, these monthly job gains indicate that 2024 has seen a strong job market so far.
However, even with strong data, inflation is not quite where it should be. Fed Chairman Jerome Powell said he needed to see more consistent evidence that the economy is moving in the right direction before cutting interest rates, emphasizing that it is better to wait rather than cut too soon – and risk having to raise rates again .
Inflation based on the consumer price index and the personal consumption expenditures price index both accelerated in March: the CPI increased by 3.5% year-on-year in March after 3, 2% in February.
“The recent data clearly has not given us more confidence and instead indicates that it will probably take longer than expected to achieve that confidence,” Powell said during a roundtable in Washington in April.
Thursday’s GDP press release from the Bureau of Economic Analysis showed that the U.S. economy continues to slow. Real GDP growth at an annualized rate ended up slowing more than expected – with an estimate of 1.6% versus 2.5% expected.
Given that inflation is still above the Fed’s 2% target, it appears rate cuts won’t come until the second half of 2024. According to the CME FedWatch tool, there are 88.4 % chance that rates will remain stable again after the next Fed meeting in June 2024, with only an 11.3% chance of a rate cut.
“At this time, given the strength of the labor market and the progress made thus far on inflation, it is appropriate to allow more time for restrictive policy to work,” Powell said during from the April round table. His cautious remarks are leading some experts to predict that cuts likely won’t come until July at the earliest.
“With Powell indicating the Fed should give more time for restrictive policy to work and a clear majority of policymakers favoring two or fewer rate cuts, we forecast just two 25 basis point rate cuts in 2024 in July and November,” said Gregory Daco, EY chief economist. in a recent comment.
Still, some Democratic lawmakers urged Powell to consider cutting rates as soon as possible to provide relief to Americans who are struggling with high prices. Before the FOMC’s decision to hold rates steady in March, a group of 23 Democrats asked Powell to “seriously consider the harmful economic consequences of keeping interest rates too high for an unnecessarily long period of time.”
For now, Powell’s main focus is on caution — and that will likely mean the relief Americans want won’t arrive until the second half of this year.
“Despite evidence of slowing economic growth, the Federal Reserve is not as close to cutting interest rates as it thought it would be at its last meeting in March,” said financial analyst Greg McBride. chief of Bankrate, in a press release. . “Inflation has continued to soar and there is no need for the Fed to cut interest rates until it is comfortable with the direction inflation is heading.”
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