WASHINGTON — Across the United States, many people are eagerly anticipating the Federal Reserve's first cut to its benchmark interest rate this year: Prospective home buyers hope for lower mortgage rates. Wall Street traders envision higher stock prices. Consumers are looking for a break on credit card debt at record-high interest rates.
The Fed's cautious approach illustrates what's unusual about this round of potential rate cuts. Vincent Reinhart, chief economist at Dreyfus-Mellon and a former Fed economist, notes that the Fed typically cuts rates quickly as the economy deteriorates in an often-futile effort to prevent a recession.
The central bank's policymakers had said after their last meeting in January that they needed “greater confidence” that inflation was cooling decisively toward their 2% target. Since then, the government has issued two inflation reports that showed the pace of price increases remaining sticky-high. But in February, a measure of housing costs slowed, a notable trend because housing is among the “stickiest” price categories that the government tracks. At the same time, more volatile categories, like clothing, used cars and airline tickets, drove up prices in February, and they may well reverse course in coming months.
The Fed has also built in some expectation that price increases would ease only gradually this year. In December, it projected that core inflation would reach 2.4% by the end of 2024. That's not far from its current 2.8%, according to the Fed's preferred measure. Like the Fed, other major central banks are keeping rates high to ensure that they have a firm handle on consumer price spikes. In Europe, pressure is building to lower borrowing costs as inflation drops and economic growth has stalled, unlike in the United States. The European Central Bank’s leader hinted this month that a possible rate cut wouldn’t come until June, while the Bank of England isn't expected to open the door to any imminent cut at its meeting Thursday.