President Joe Biden touts his administration's actions to invest in American industries like manufacturing in a speech from Arizona.Federal Reserve Board Chair Jerome Powell speaks during a news conference the Federal Reserve in Washington, Wednesday, March 20, 2024. ngly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.
Speaking at a news conference, Chair Jerome Powell noted that inflation has cooled considerably from its peak. But, he added, "inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain." On Wall Street, traders sent stock prices surging Wednesday, evidently out of relief that the Fed kept its projection of three rate cuts this year. Traders had feared that the Fed might downgrade the number of expected rate cuts for 2024. Investors may also have been pleased that at his news conference, Powell didn't sound alarmed by signs of higher-than-expected inflation.
For 2025, though, the policymakers now foresee only three rate cuts, down from four in their December projections. One reason may be that they expect "core" inflation, which excludes volatile food and energy costs, to still be 2.6% by the end of 2024, up from their previous projection of 2.4%. In January, core inflation was 2.8%, according to the Fed's preferred measure.
When the Fed raises its benchmark rate above the neutral rate, it seeks to slow growth and tame inflation. If the neutral rate is actually higher than the Fed had thought, it means its benchmark rate should be higher, too, to cool the economy and inflation. While the Fed's rate hikes typically make borrowing more expensive for homes, cars, appliances and other costly goods, they have much less effect on services spending, which doesn't usually involve loans. With the economy still healthy, there is no compelling reason for the Fed to cut rates until it feels inflation is sustainably under control.
Source: Loan Digest (loandigest.net)
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