Hopes for interest rate cuts this year by the Federal Reserve are steadily fading, with a stream of recent remarks by Fed officials underscoring their intention to keep borrowing costs high as long as needed to curb persistently elevated inflation.
A key reason for the delay in rate cuts is that the inflation pressures that are bedeviling the economy are being driven largely by lingering forces from the pandemic — for items ranging from apartment rents to auto insurance to hospital prices. Though Fed officials say they expect inflation in those areas to eventually cool, they’ve signaled that they’re prepared to wait as long as it takes.
Yet the policymakers’ willingness to keep their key rate at a two-decade peak — thereby keeping costs painfully high for mortgages, auto loans and other forms of consumer borrowing — carries its own risks.
The Fed’s mandate is to strike a balance between keeping rates high enough to control inflation yet not so high as to damage the job market. While most measures show that growth and hiring remain healthy, some gauges of the economy have begun to reveal signs of weakness. The longer the Fed keeps its benchmark rate elevated, the greater the risk of causing a downturn.
Source: AP
