Fed Signals Hold on Rates as Inflation Slows Slowly

Based on recent comments from Federal Reserve officials and economists, it’s likely that there won’t be many, if any, interest rate cuts this year. This is due to the fact that the sharp interest rate hikes of the past two years are taking longer than expected to bring down inflation. Despite the Fed’s rate increases, Americans as a whole are not spending significantly more of their incomes on interest payments compared to a few years ago, which suggests that higher borrowing costs aren’t having as much of an impact as economic textbooks would suggest. Many Americans who refinanced their mortgages at low rates during the past decade and a half, or who took out low-rate car loans before rates rose, have also been shielded from the effects of higher borrowing costs. While delinquencies on credit cards and auto loans are rising, they are still at relatively low levels. As a result, some economists believe that the Fed’s rate hikes may need to stay high for longer or possibly even become higher in order to generate more braking power on the economy. However, others argue that greater borrowing costs will eventually start to bite as more Americans face higher mortgage rates and more companies have to borrow at higher rates as their low-interest loans mature. Overall, the Fed appears to be taking a cautious approach, waiting for more evidence that inflation is decreasing sustainably before making any significant policy decisions, such as interest rate cuts.