The Federal Reserve revealed that progress on inflation has halted, making it more challenging for the Fed to feel confident in lowering interest rates. Federal Reserve Chairman Jerome Powell emphasized the uncertainty in bringing inflation down further. The Fed’s previous projections for interest rate hikes have shifted, with expectations now leaning towards fewer cuts in the following year.
At the end of last year, there was a false sense of victory over inflation as key indicators seemed promising. However, economic growth remained strong, and it was clear that disinflation was mainly affecting goods rather than services. Despite warning signs, the Fed remained cautious about immediate cuts.
Inflation surged in the first quarter of this year, challenging the Fed’s belief in a sustained downward trend. Powell stated that more positive inflation data is needed before considering rate cuts. The Fed’s next move will depend on upcoming inflation data, with a possibility of a hike if inflation remains high. The Fed’s current stance is to wait and see before making any significant policy changes.
