Fed Officials Brace for Confirmation of Stalled Inflation Progress

The Fed signals rates will remain high until inflation nears 2%, delaying expected rate cuts and impacting the economy, markets, and global finance chiefs.

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Hadeel Hashem
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Fed Officials Brace for Confirmation of Stalled Inflation Progress

Fed Officials Brace for Confirmation of Stalled Inflation Progress

Federal Reserve officials are set to receive further confirmation that progress against inflation has stalled, supporting a shift in tone to keep interest rates higher for longer than previously anticipated. The personal consumption expenditures price index, the Fed's preferred inflation gauge, is expected to have accelerated slightly in March, with the core metric also rising.

Fed Chair Jerome Powell has signaled that rates will remain high until inflation gets closer to the 2% target, a shift from his previous stance of continued progress on inflation. Powell said the Fed can keep rates steady for "as long as needed" if price pressures persist, noting that the strength of the labor market and progress on inflation so far indicate it is appropriate to allow restrictive policy further time to work.

The fresh inflation data will be accompanied by March personal spending and income figures, as well as the government's initial estimate of first-quarter economic growth, which is expected to have cooled from the prior period's robust pace but still remain above the long-run sustainable level. The data will provide further insight into the state of the economy and the path of inflation, which will be closely watched by policymakers as they navigate the next steps in their monetary policy decisions.

Why this matters: The stalled progress on inflation has significant implications for the U.S. economy and financial markets. The Fed's potential delay in rate cuts could prolong the period of high borrowing costs, affecting businesses, consumers, and investors. The central bank's monetary policy decisions will have far-reaching consequences for economic growth, employment, and asset prices.

The shift in the Fed's stance has led to a new debate on Wall Street about the timing and extent of potential rate cuts in 2024, with traders now betting the first rate cut won't come until September instead of June or July, and only one or two cuts instead of the six predicted earlier. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, stated that he is happy with the existing interest rate situation and believes that reducing borrowing costs won't be feasible until almost the end of the year.

The strength of the U.S. economy is a concern for global finance chiefs, as high-interest rates and a strong dollar force other currencies to fall and hinder efforts to reduce borrowing costs. The Fed's rate cut move and a potential delay in rate reduction has caused market turbulence for cryptocurrencies, but it is unlikely to slow the rate of expansion of the cryptocurrency market given the existing circumstances.

Key Takeaways

  • Fed officials expect inflation data to show stalled progress, supporting higher rates.
  • Powell signals rates will remain high until inflation nears 2% target, a shift from before.
  • New data will provide insight into economy, inflation path, guiding Fed's next policy moves.
  • Delayed rate cuts could prolong high borrowing costs, affecting businesses, consumers, investors.
  • Fed's rate cut delay causes market turbulence, unlikely to slow crypto market expansion.