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March 18, 2024 — Fed’s Caution on Rates Justified as Inflation Picks Up in February

MARCH 18, 2024 — FED’S CAUTION ON RATES JUSTFIED AS INFLATION PICKS UP IN FEBRUARY

Inflation remained persistent as consumer prices rose 0.4 percent in February, up from 0.3 percent in January. Compared to a year ago, prices were up 3.2 percent, ahead of January’s 3.1 percent annual pace. Core prices, which exclude food and energy, were up 0.4 percent month-over-month, which trends ahead of the Fed’s 2 percent target.

With inflation ticking up two months in a row, the Fed’s cautious approach to adjusting rates has been validated. They have repeatedly said they do not want the economy to experience rebound inflation, and as such, will not move on rates until they are certain inflation is on a consistent decline. The inflation rate has been cooling, but more slowly than it was a year ago.

Fed Chair Powell needs “greater confidence” inflation is nearing 2 percent before agreeing to lower rates. No policy changes are expected to be announced at the Fed’s meeting this week. The focus will be whether the Fed anticipates two or three rate cuts this year. The good news is there has been no talk about further raising rates. Most economists continue to expect the first rate cut in 2024 to take place in June.