Inflation Inches Closer to the Federal Reserve’s Target
With inflation coming close to the 2% target of the Federal Reserve, policymakers are facing growing hopes that they will make a decisive policy shift and cut interest rates next year, possibly as early as spring time.
A rate cut would have an extensive impact on the economy, reducing borrowing costs and making mortgages, car loans, and business loans cheaper. Stock prices could also rise, although the gains could be limited due to the anticipation of the cuts.
Despite these hopes, Fed Chair Jerome Powell has downplayed the idea that a rate cut is imminent. As the central bank meets this week, Powell has not yet signaled that the Fed has definitively ended its hikes. However, the two-day meeting will mark the third time in a row that its officials have kept their benchmark rate unchanged, suggesting that the rate hikes have come to an end.
The latest economic trends and government data indicate that the economy is moving in the desired direction of the Federal Reserve. A decline in consumer prices and a decreased number of job openings have eased pressure on inflation and indicate that the economy continues to expand.
This gradual movement toward lower inflation has taken many economists by surprise. The decline in inflation without causing a recession is seen as an optimistic sign by some, while others warn that a soft landing is not a sure thing and that the timing of rate cuts will depend on the health of the economy.
The reduction in inflation might prompt the Federal Reserve to cut rates later than expected by Wall Street, as policymakers will want to ensure that inflation is under control before taking action. The Fed’s quarterly economic projections will provide a forecast of where policymakers think its policy rate will be at the end of 2024, which analysts are keeping a close watch on.