Economy

That Fed Rate Cut Isn't Coming

Douglas A. McIntyre

Published: June 11, 2024 6:45 am

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• With consumers still squeezed by inflation, the Federal Reserve has little impetus to cut interest rates this year.

This week, the Federal Reserve will likely say how many times it will cut interest rates this year. Most of the smart money is on once or twice. At the start of the year, the smart money said four times. That dropped to three times two months ago. The Fed forecasting business is not going very well.

The Wall Street Journal reports, “The central bank is on track to hold steady its short-term benchmark rate in a range between 5.25% and 5.5% on Wednesday. Officials are also likely to keep the guidance in their closely parsed policy statement that teases that their next rate move is more likely to be down than up.” Even the Journal’s description of what might happen is vague.

The reasons for the Fed to hold interest rates where they are ludicrously simple. Unemployment has been below 4% for 27 months, as the economy has added millions of jobs over that period. It finally hit 4% in May, but simultaneously, the economy added 272,000 jobs. Clearly, the cost of money is not slowing business expansion, even if borrowing rates are much higher than in the decade that ended about two years ago.

The consumer still feels high inflation. Although the consumer price index may be lower than two years ago, the costs of many things people buy daily remain high. This is particularly true of many foods. Inflation is inflation if people feel it is.

Inflation should keep people out of the real estate and car markets. Granted, more people are renting because of 7% mortgage rates. However, existing home sales are expected to hit 4.6 million this year. The car industry will post healthy results in 2024, even with car loan rates at 6%.

The Fed can see inflation hiding out in the open. That is all it needs to keep rates where they are.

How Inflation Is Eating Away at the Middle Class

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