Fed speakers continue to dash Wall Street hopes of rate cut

A number of Federal Reserve policymakers have cautioned against reducing US interest rates excessively or prematurely in light of January’s unexpectedly high inflation. They essentially confirmed the minutes from the Federal Reserve’s most recent meeting in January, which revealed that the majority of central bank officials were apprehensive about the possibility of cutting rates too quickly in case inflation spiked again.

This could allow inflation to rise again following a sharp decline in the previous year. The idea that holding interest rates too high for too long might slow down the economy and possibly lead to a recession concerned only two policymakers.

Member of the powerful Fed board of governors Christopher Waller named his speech “What’s the rush?” because he has to confirm that progress on reducing inflation will continue and that there is no rush to start lowering interest rates. While the overall rate of inflation in 2023 dropped from 7.1% in 2022 to just 2.6%, consumer prices increased more quickly than they had in eight months between December and January.

According to Waller, the January numbers could have been caused by sporadic anomalies or indicate that “inflation is stickier than we thought.” He stated that we should hold off on cutting rates until we are sufficiently confident that we will still be headed towards 2% inflation.

Waller’s remarks may cause the Fed to alter its widely held expectations that it will make its first cut in May or June. Rate reductions by the Federal Reserve usually result in lower borrowing costs for credit cards, auto loans, mortgages, and other commercial loans.

The few previous days witnessed a remarkable change of expectations as some economists even recently addressed the possibility that the next move could be a hike, assigning it a 15% probability. While higher-for-longer remains likely, there’s now a small chance policy will get tighter before any easing ahead.