Nearly three months into 2024, still no sign of the interest rate cuts that seemed to be on the horizon just a few months ago. The Federal Reserve holds its second meeting of the year this week, but the results will be the same as the last. "We think the Federal Reserve is going to leave interest rates unchanged, then they have another meeting in May and we believe they're going to leave rates unchanged there as well," says KTRH Money Man Pat Shinn with Heritage Asset Advisors. "The big question is going to be what happens at the June meeting, and right now the markets are pricing in roughly 50-50 odds that we may see the first rate cut there."
The Fed has held interest rates steady since last fall, after raising them to historic levels over the last two years to battle surging inflation. Even though the inflation rate has come down, it remans above the Fed's target annual rate of 2%. That "sticky" inflation has kept a lid on any interest rate cuts, although some analysts doubted the Fed's dovish outlook for 2024. "We certainly saw inflation drop from its high of around 9% all the way down to about 3%," says Shinn. "But now we've seen inflation somewhat level off...so it's not like prices are going down, we're just simply seeing them go up by less."
So the Fed remains in a holding pattern for now, but knowing when to get out of it will be the tricky part. "They're walking a tightrope," says Shinn. "If they wait until inflation is all the way down to 2%, they may have waited too long to lower rates."
"At the other end of the spectrum, if they cut rates now we may see inflation re-accelerate," he continues. "That was the mistake they made back in the early 80s that they do not want to repeat."
Photo: Dorwart, Mike (uploader)