Don’t expect interest rate cuts anytime soon

If you were hoping for several interest rate cuts this year, we’ve got bad news for you: Sticky inflation in Q1 seems to have the Fed reluctant to make a move any time soon.

The March Consumer Price Index, which the Bureau of Labor Statistics released last week, revealed that core inflation hit 3.8% YoY in March, rising for the first time in 12 months. That’s moving in the wrong direction for the Fed, whose goal is to bring inflation down to 2%.

Other recent data shows the economy is chugging along. In March, employers added 303,000 jobs, far surpassing the 200,000 that economists had predicted. And retail sales grew 0.7%, outpacing the 0.3%–0.4% growth analysts expected.

The Fed is paying attention. Comments by Chair Jerome Powell suggest the agency is likely to keep rates steady for the time being.

“The recent data have clearly not given us greater confidence, and instead indicate that it is likely to take longer than expected to achieve that confidence,” he said during an April 16 event in Washington, DC, the Wall Street Journal reported. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work.”

In early 2024, analysts predicted there’d be as many as seven rate cuts this year. Now those odds have dropped considerably. According to the CME Group’s FedWatch tool, there’s now only a 44% chance of a rate cut in July, a 71% chance of a September cut, and an 11% chance that there will be no cuts at all this year, CNBC reported. Many economists now think there will only be one or two cuts before 2025, the Wall Street Journal noted.

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