The Federal Reserve officials are reconsidering their previous forecast of three rate cuts this year, with some now saying rates may stay above 5% in 2024. There are concerns about the consequences of cutting rates too soon or too late, as it could affect inflation and potentially trigger a recession. Atlanta Fed President Raphael Bostic believes that the central bank should only cut rates once this year, as the economy has been more resilient and energized than expected.
Despite the expectations of a rate cut sometime in the summer, Federal Reserve Chairman Jerome Powell has not publicly shared his timeline for cutting rates. Some investors were previously estimating several cuts in 2024, but recent inflation readings have been higher than expected. Rising shelter costs and climbing gas prices have contributed to inflation, which may prevent any rate cuts. Economists still expect inflation to gradually drift lower, even if not as much as previously anticipated.
Powell has stated that more confidence is needed that inflation is heading towards 2% before any rate cuts are made. Fed Governor Lisa Cook also emphasized the need for a careful approach to policy adjustments to ensure inflation returns sustainably to 2% while maintaining a strong labor market. However, some officials, like Chicago Fed President Austan Goolsbee, believe that three rate cuts this year are necessary to reach the Fed’s target.
Powell has previously mentioned that waiting for inflation to return to target before cutting rates would be too late, as it can take time for the full effect of interest rates to impact the economy. This consideration of the “long and variable lags” of monetary policy is influencing officials’ decisions on rate cuts. Fed Governor Christopher Waller will be discussing the economy in a speech, while Powell will participate in a monetary policy discussion later in the week. The Fed is still in a wait-and-see mode, as officials gather more data to determine the best course of action regarding interest rates.
