Fed’s rate cut timing triggers fresh questions

The Fed’s decision to cut interest rates is expected to be influenced by strong US growth, which has led officials to believe they can afford to delay the process.

The Federal Open Market Committee is likely to vote to leave benchmark interest rates unchanged at a 23-year high of 5.25-5.5 per cent, following a lengthy effort to manage inflation.

However, there is uncertainty over the extent to which Fed chair Jerome Powell will hint at cuts on the horizon. Many economists point instead to late spring or early summer, as the US economy is healthy enough for the Fed to hold rates higher for longer.

Gross domestic product grew at an annualized rate of 3.3% in the fourth quarter, marking a strong finish to a year in which many economists thought the US would fall into recession. If policymakers want to take their time on cutting rates, starting later plays to this desire to confirm that everything is on track to durably return inflation to 2.5%.

Fed governor Christopher Waller said the central bank was within “striking distance” of hitting its 2% inflation target, but argued that strong growth and a tight labour market meant officials did not have to act too hastily.