On a day devoid of any major calendar-scheduled market-moving events, portfolio managers, economists, and Federal Reserve policy makers are all asking the same question: Are U.S. interest rates, now at a 23-year-high of 5.25% to 5.5%, high enough?
Expectations for 2024 rate cuts by the Fed are now being accompanied by conversations about an alternative scenario, one where higher borrowing costs are what’s needed to vanquish inflation.
On Thursday and Friday, two officials, New York Fed President
John Williams and Chicago Fed President
Austan Goolsbee, failed to rule out the possibility of a rate hike.
And on Tuesday, Federal Reserve Chair
Jerome Powell cited a lack of confidence that inflation is coming down to the central bank’s 2% target and signaled that rates will need to remain at current levels for longer.
Inflation readings have come in consistently higher than expected for the first three months of the year, and
U.S. economic growth is now expected to perform better than previously thought in 2024.
On average, economists polled by the Wall Street Journal estimate that the economy grew at a 2.2% real annualized rate during the first quarter and should grow by 1.4% in the third quarter, before picking up slightly to 1.5% in the final three months of the year.