Steven Rick - Fed Rate Cut Unlikely in Near Future, Says TruStage Forecast

MADISON, Wis.–TruStage’s chief economist isn’t expecting the Fed to lower rates anytime in the near future.

Steve Rick

In the company’s July Trends Report, which reflects CU performance data through May, Steve Rick noted that recent Bureau of Labor Statistics data indicated headline inflation rose only 3% during the year ending in June 2023, down from the 9% reported in June 2022.

“So, with inflation rapidly approaching the Federal Reserve’s 2% inflation target, can we assume the Fed is done raising interest rates and may begin lowering them sometime soon? Well, not so fast,” stated Rick.

Rick pointed out the Federal Reserve’s preferred measure of inflation is the core personal consumption expenditure index.

A ‘Better Measure’

“The term core means it excludes the volatile food and energy sectors to get a better measure of the underlying inflationary pressures in the U.S economy,” Rick wrote in the Trends Report. “This inflation measure has been stuck at 4.6% year-over-year inflation for the last six months. The Federal Reserve is worried that the very strong labor market and rising wages are keeping this inflation measure elevated above their 2% target. So, the Federal Reserve is not expected to lower interest rates anytime soon and will in all likelihood raise the fed funds interest rate to 5.6% by the end of the year. They are hoping this will create the proverbial ‘soft landing’ where inflation subsides without causing a recession.”

The Forecast

Rick is forecasting the rise in short-term interest rates will continue liquidity and funding cost pressures for banks and credit unions for the next 12 months.

“We don’t expect the Federal Reserve to lower interest rates until the middle of 2024,” he said.