Inflation is nearly back to 2%. So why isn't the Federal Reserve ready to cut rates?
From Wall Street traders to car dealers to home buyers, Americans are eager for the Federal Reserve to start cutting interest rates and lightening the heavy burden on borrowers
WASHINGTON — From Wall Street traders to car dealers to home buyers, Americans are eager for the Federal Reserve to start cutting interest rates and lightening the heavy burden on borrowers.
The Fed is widely expected to do so this year — probably several times. Inflation, as measured by its preferred gauge, rose in the second half of 2023 at an annual rate of about 2% — the Fed's target level. Yet this week, several central bank officials underscored that they weren’t ready to pull the trigger just yet.
Why, with inflation nearly conquered and the Fed's key rate at a 22-year high, isn't now the time to cut?
Most of the Fed's policymakers have said they're optimistic that even as the economy and the job market keep growing, inflation pressures will continue to cool. But they also caution that the economy appears so strong that there's a real risk that price increases could spike again.
And some are worried that if they cut rates now and inflation re-accelerates, then the Fed could be forced into an about-face and have to raise rates again.
«History tells many stories of inflation head-fakes,» said Tom Barkin, president of the Federal Reserve Bank of Richmond, in a speech Thursday.
Inflation had seemed defeated in 1986, Barkin noted, when Paul Volcker was Fed chair.
“The Fed reduced rates, but inflation then escalated again the following year, causing the Fed to reverse course," he said.
«I would love to avoid that roller-coaster if we can,” said, Barkin, who is among 12 Fed officials who vote on interest rate policy this year.
Several officials
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