The inflation rate has dropped from a historic high of 9.2% to around 3.6%, but apparently that’s now low enough for the Federal Reserve to consider cutting its prime interest rate.
In a statement issued after its most recent meeting, the Fed decided not to cut rates, instead leaving it at 5.3%, a 20-year high. The Fed said in its statement that inflation remains “stubbornly high” and that potential rate cuts won’t happen until there is “greater confidence” in reaching its 2% target.
“In recent months, inflation has shown a lack of further progress toward our 2% objective,” ” Chair Jerome Powell said at a news conference after the meeting. “It is likely that gaining greater confidence will take longer than previously expected.”
While continuing to say the Fed’s decision on when to cut rates – which economists expect will come perhaps this summer — will depend on the most-up-to-date economic data. “My expectation is that over the course of this year, we will see inflation move back down,” he said.
At its March 20 meeting, Fed officials indicated three rate reductions would likely come in 2024, perhaps starting in June. Rate cuts by the Fed would lead, over time, to lower borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards.
The Associated Press reported that, given the persistent inflation rate, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.
On Wednesday, the Fed announced it would slow the pace at which it’s unwinding one of its biggest COVID-era policies: Its purchase of several trillion dollars in Treasury securities and mortgage-backed bonds, an effort to stabilize financial markets and keep longer-term rates low, according to the AP.
