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Fed Seen Likely to Hold Off on Rate Cut Following Feb. Inflation Report
With increases in energy and housing costs comprising more than 60% of the total gain, inflation came in slightly hotter than expected for February, according to the U.S Bureau of Labor Statistics. The 0.4% monthly increase was in line with expectations, while the 3.2% annual gain came in above the 3.1% consensus of economists polled by Dow Jones.
The latest inflation report increases the likelihood that the Federal Reserve will hold the line on the federal funds rate at its two-day meeting next week, reported the Wall Street Journal and CNBC. Although further rate increases appear to be off the table for now, inflation levels above the Fed’s 2% target raise the question of when rate reductions will begin, as well as how many we’ll see this year.
“Inflation continues to churn above 3%, and once again shelter costs were the main villain,” Robert Frick, corporate economist at Navy Federal Credit Union, told CNBC. “With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon. Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.”
However, Eric Rosengren, who led the Boston Fed from 2007 to 2021, doesn’t think the inflation report will fundamentally alter expectations for three rate cuts this year. Tuesday’s report “basically tells the story that there’s a gradual improvement” in core inflation, Rosengren told the WSJ. “As long as wages and salaries continue to drift down, I don’t see this report really altering the overall view of probably a June reduction.”
- ◦Economy
