Inflation is nearly back to 2%. So why isn’t the U.S. Federal Reserve ready to cut rates?
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The U.S. Federal Reserve is not ready to cut rates despite inflation being nearly back to 2%. Most policy-makers are optimistic that inflation pressures will continue to cool, but caution that the strong economy poses a risk of re-accelerating price increases. They want more time to see if inflation continues to subside and believe the economy is solid enough to thrive without rate cuts. However, the longer borrowing rates stay high, the higher the risk of weakening the economy and potentially causing a recession. The Fed is trying to balance the risk of cutting rates too soon and causing inflation to re-accelerate, and keeping rates too high for too long, which could trigger a recession. The Fed plans to cut rates perhaps three times this year, below the five or six that some market analysts foresee.