A string of disappointing inflation data has forced the Fed to reschedule its first rate cut and reassess the trajectory of price growth.
Jerome Powell, chairman of the Federal Reserve, stressed the message this week, saying the confidence needed to cut interest rates could take "longer than expected", shattering hopes of more than two cuts in 2024. Some people worry that interest rates may not be cut at all.
"this confirms the Fed's willingness to wait," said Diane Swonk, chief economist at KPMG. "people worry that it is too easy to stimulate the economy, and the demand is still very high."
Powell lacks a sense of urgency to adjust interest rates, just like his colleagues. But continued strength in the economy and labour markets, as well as a rebound in markets at the start of the year, have also reignited discussions about the extent to which monetary policy is restrictive.
Fed officials are increasingly expressing concern that high borrowing costs may not be enough to dampen demand, adding to anxiety among investors and analysts that the Fed may need to raise interest rates further.
Most policymakers have made it clear that interest rates are expected to peak, but some Fed officials say they are open to the idea if it is necessary to rein in price growth.
John Williams, president of the Federal Reserve Bank of New York, said the current policy was restrictive and said Thursday that raising interest rates was not his baseline expectation. But he added that it was possible to raise interest rates if economic data supported such an approach to meet the Fed's inflation target.
In a recent speech, Susan Collins, president of the Federal Reserve Bank of Boston, welcomed the rapid decline in inflation last year, but expressed concern that prices would continue to be under pressure if demand did not cool.
"this means that demand will have to slow down before the Fed can achieve its price stability target," Collins said in a speech on April 11. "so while resilience in economic activity is good news, it also raises questions about the extent to which monetary policy positions actually dampen demand."
According to the survey's median forecast, economists now expect interest rates to be cut twice this year, less than the three cuts expected in March.
The progress in inflation last year can be largely attributed to an improvement in economic supply.CasinocruisenodepositbonusThe chaotic supply chain was finally unraveled and a flood of immigrants poured in to help fill the vacant jobs.
At the same time, demand remains strong. The economy grew rapidly in the second half of 2023. And just last month, retail sales grew by 0. 5%Casinocruisenodepositbonus.7%, exceeding economists' expectations.
However, as demand is the main channel for monetary policy to play its role, the persistence of demand raises questions about the degree of economic constraints.
"if you don't know how restrictive it is, you almost have to wait and see," said Sarah House, a senior economist at Wells Fargo.