There’s a possible pause in reducing interest rates due to steadily rising inflation. March’s notable inflation jump suggests that the current high-interest rates may not be reduced shortly. Federal Reserve representatives are assessing these trends and appear unlikely to cut interest rates soon.
Bureau of Labor Statistics data shows a 3.5% price increase from March 2023 to March 2024. This uptick suggests that the Federal Reserve may hold off on lower interest rates. Factors such as this contribute to a potential for a steady or slightly elevated interest rate in the foreseeable future.
Changes in economic conditions have led economists to push back their expectations for rate cuts. American Action Forum president Douglas Holtz-Eakin stated that March’s data did not instil confidence in imminent economic growth. The possibility of rate cuts might now not occur until the end of 2024.
A delay in reducing rates could cause uncertainty in November’s presidential election.
Inflation impacts on rate cut schedule
Political parties tend to use economic variables to their advantage, and this potential delay in cutting interest rates may bring uncertainty to the election. Changes in the economy could significantly influence the election’s outcome.
Inflation in March was mainly due to increases in housing and energy costs. Rising car insurance claims, food prices, and health care costs also contributed significantly to the inflation spike. However, experts predict that this may be temporary, influenced by global events rather than an extended period of economic instability.
Groundwork Collaborative Executive Director, Lindsay Owens, expressed concerns over inflation interpretations. She believes that aspects such as high car insurance claims and global events impacting energy costs are not affected by the Fed’s current rates. She suggested a more holistic examination of inflation’s root causes and precise responses to each contributing factor.
Initial rate cut expectations for 2024 were based on promising data from 2022. However, challenges in controlling persistent price increases in 2024 have led economists to reimagine their predictions. Thus, the possibility of rate cuts in 2024 appears to be dwindling.
