Will the Fed cut rates soon? Here’s what the experts say
The Federal Reserve has been consistently raising interest rates over the last year in a bid to temper interest rates.
The measures taken by the Jerome Powell-led Federal Reserve have not brought down inflation as much as hoped. Consistent interest rate rises are supposed to throttle spending. If borrowing money becomes more expensive, and saving becomes more valuable, then inflation should go down right?
The causes of inflation have been changing in the last two years. Initially prices were driven by a spending boom after the first wave of covid-19. Then, and more seriously, the Ukraine war disrupted the price of energy. Now, the price of services is keeping inflation high.
Merely aiming to restrict people’s spending power has not done enough to bring inflation down to where the Fed wants; two percent. It has decreased from highs of last year but not enough for interest rate cuts to begin soon. However, it is widely expected there will not be any more interest rate increases.
With inflation hovering around six percent it is too soon to expect rates to decrease, lest the Fed see inflation begin to tick up again. Unemnployment is low so there is no need to encourage businesses to begin hiring on a large scale.
Experts give their verdict on rate decreases
CNN Business spoke to a number of industry leaders to get their verdicts on the prospect of rate cuts this year.
“The Fed rarely cuts rates without some sort of crisis in between,” said Kara Murphy, chief investment officer at Kestra Investment Management. Something like the impending debt ceiling crisis and its fallout would qualify as a ‘crisis’.
“The Fed would lose what credibility they have left if for no reason, they went from hiking to cutting,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“I don’t think that the Fed is going to be in any hurry to cut rates this time,” said Marco Pirondini, US head of equities at Amundi.
There will be a point where rates will need to be decreased, but that is unlikely to be in 2023.