'Victory is Elusive': CU Economist Agrees Fed Rate Cuts Questionable Following New CPI Report

04/10/2024 11:01 am

WASHINGTON–A credit union economist has joined with other economists and analysts in forecasting a delay in any rate cuts by the Fed in 2024 following today’s inflation report.

The newly released Consumer Price Index climbed 3.8% on an annual basis after stripping out food and fuel prices. That “core” index was stronger than the 3.7% increase economists expected, and unchanged from 3.8% in February. 

Counting in food and fuel, the inflation measure climbed 3.5% in March from a year earlier, up from 3.2% in February and faster than what many had forecast. 

"Victory in the Federal Reserve's inflation fight remains elusive with a stubbornly high headline consumer price index increase of 0.4% in March, matching February's disappointing result,” said America's Credit Unions VP-data and research, chief economist Mike Schenk. "Market expectations around the timing and magnitude of Fed interest rate changes are being recalibrated. The report clearly suggests later and fewer cuts than previously believed, especially if recent trends aren't reversed in the next few months.

"Average consumers will continue to wrestle with already-stressed household budgets & borrowing costs will remain high. Savers, on the other hand, will almost certainly enjoy high yields for longer,” Schenk added. 

Mike Schenk

From Three to Zero?

As CUToday.info has been reporting, as 2024 got underway most economists, including in credit unions, had pencilled in three rate cuts for this year after several years of ongoing rate increases. The Fed itself also signaled as recently as March that it would look to reduce rates three times.

But inflation has proven stubborn, and many have backed off those forecasts, with some questioning whether the Fed will be able to reduce rates at all this year.

The Fed’s target inflation rate is 2%, and while it’s down substantially from where inflation stood two years ago, strong economic numbers and robust employment have complicated the picture.

‘Price Pressures’

“It’s a stronger than expected number, and it’s showing that those price pressures are strong across goods and services,” Blerina Uruci, chief U.S. economist at T. Rowe Price, told the New York Times.  “It’s problematic for the Fed. I don’t see how they can justify a June cut with this strong data.”