Fed Expected to Adjourn Today With No Cut in Rates; One Person Suggests What May be Needed is Rate Increase

04/30/2024 07:23 pm

WASHINGTON–When the Federal Reserve’s Open Markets Committee adjourns today after two days of meeting, market-watchers say not only is it almost guaranteed there will be no rate cut, but the meeting could include discussion of a potential rate increase.

That’s a far cry from just five months ago when most forecasts for 2024 expected inflation to continue to decline and the Fed to respond with three rate cuts.

The reason: as every credit union is aware, inflation has proven to be much more stubborn than anticipated, and the central bank has maintained the Fed funds rate at a range of 5.25% to 5.50%.

Persistently high inflation “is the new normal” that will keep the Fed on pause, Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in a research note that was cited by the New York Times.

Uncertainty in the Markets

According to the Times’ analysis, both the Fed and Wall Street are unsure what to make of the new normal, with discussion focused around what economists call a “neutral interest rate,” or a cost of lending that enables sustainable growth without causing inflation to spike.

Markets are now expecting a single rate cut in 2024, rather than three, and that may not occur until much later in the year than expected.

One Hawk’s View

But as the Times also noted, some hawks are suggesting a rate cut isn’t what’s needed at all. Raphael Bostic, president of the Atlanta Federal Reserve Bank, has warned that a rate increase cannot be ruled out “if inflation stalls out or even starts moving in the opposite direction, away from our target.”