In early 2024, investors expected the U.S. Federal Reserve to cut interest rates sharply this year as inflation slowed. But rising prices have been surprisingly stubborn, forcing Wall Street to reconsider.
Investors and economists are wondering when and how much Fed policymakers will cut interest rates, and some are increasingly doubting whether Fed officials will be able to do so before the end of the year. There is.
Inflation was steadily declining in 2023, but progress stalled in 2024. The Fed's preferred measure of inflation, which subtracts volatile food and fuel costs, rose 2.8% in March from a year earlier, data showed on Friday. Although it has fallen significantly from its peak in 2022, it is still well above the central bank's 2% target.
Because of the persistence of inflation, Fed officials have indicated that cutting rates may take longer than previously expected. Policymakers raised interest rates to 5.33% from March 2022 to last summer and have kept them there since then. Investors who entered this year expecting a first rate cut by March have postponed their expectations until September or later.
Some analysts are starting to wonder if the Fed's next move will be to raise rates, but the move comes after months when Wall Street overwhelmingly expected the Fed's next move to be a rate cut. That would be a big reversal.
But most economists think it will be a long time before the Fed shifts gears that boldly.
“That's certainly possible, but it would require a full acceleration in inflation,” said Matthew Ruzzetti, chief U.S. economist at Deutsche Bank.