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Federal Reserve Pumping Brakes On Interest Rate Cuts

Officials say inflation must continue to drop before rate cuts continue

Federal Reserve Pumping Brakes On Interest Rate Cuts

Federal Reserve officials have signaled a possible pivot in monetary policy, advising that recent trend of rate cuts could be nearing an end.

Given a recent report from the Bureau of Labor and Statistics (BLS) showing inflation unexpectedly high in January, the Fed is considering pausing additional rate cuts for the time being.

"What's the rush?” Asked Christopher Waller, a member of the Fed’s board of governors, in remarks he made on Feb. 22. “We need to verify that the progress on inflation we saw in the last half of 2023 will continue and this means there is no rush to begin cutting interest rates.”

Year-over-year inflation has fallen from 7.1. percent in 2022 to just 2.6 percent for 2023. However, according to January’s data, the monthly inflation rate increased from December 2023 to January 2024.

The statement by Fed officials shows a belief that the measures taken so far to slow the post-pandemic inflation have been effective, but indicates that the U.S. has not entirely reached a place of economic stability where inflation is no longer a concern.

“Inflation is stickier than we thought,” Waller added. “This means waiting longer before I have enough confidence that beginning to cut rates will keep us on a path to 2 percent inflation.”

Some analysts are saying that now that inflation is slowing, the Fed could be making a mistake by moving too slowly to cut rates.

“The longer they wait, the greater the risk that something goes off the rails,” Mark Zandi, chief economist of Moody’s Analytics, told USA Today.

“I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole,” Waller said. “With most data indicating solid economic fundamentals, the risk of waiting a little longer to ease policy is lower than the risk of acting too soon and possibly halting or reversing the progress we’ve made on inflation.”

Waller also said that Fed officials are closely watching indicators of hiring and job openings, as well as shifts in consumer demand, which will guide them in decision-making on rate hikes or cuts.

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