After more than 20 months of inflation and higher borrowing costs, investors, economists and — eventually — Federal Reserve officials said they expected the economy to soften this year, allowing the central bank to finally start cutting rates.
But those expectations of a Fed pivot keep getting pushed back. While the market initially expected six rate cuts this year, starting in March, that’s now off the table.
“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that,” Fed Chair Jerome Powell said of possible cuts at the Fed’s January meeting.
Now, some economists think the Fed won’t cut interest rates at all this year.
The economy is not slowing down and some underlying measures of inflation are growing, said Torsten Slok, chief economist at Apollo Global Management, in a note to investors earlier this month.
“The Fed will not cut rates this year and rates are going to stay higher for longer,” he added.
In some ways, the expectations of interest rate cuts by the Fed undermined their efforts to actually cut the rates. That’s because US growth expectations for 2024 saw a jump as investors and economists factored in easing financial conditions.
Economists at S&P 500 Global Ratings now expect US real gross domestic product to grow by 2.4% in 2024, up from their forecast of 1.5% in November. The labor market remains incredibly resilient, with unemployment at historic lows and wage inflation remaining elevated.
But an expanding economy can also accelerate the rate of inflation. Recent data shows that the Fed’s preferred measure of inflation was still stuck above the central bank’s target in January.
