The Federal Reserve sticks to its plans, despite an uncertain situation
believe that the last mile is the hardest: all the blisters and accumulated aches slow progress at the very end. Others swear that it is the easiest because the finishing line is in sight. For the Federal Reserve, the last mile of its trek to bring inflation back to its 2% target has been simultaneously easy and hard. Easy in the sense that the central bank has not budged on interest rates for eight months, instead letting its previous tightening do the work.
An important gap in inflation measures helps explain the Fed’s rationale for sticking with its plan for this year. Much of the concern about the persistence of inflation stems from recent readings of the consumer price index. “Core”which strips out volatile food and energy costs, decelerated throughout much of 2022 and early 2023, but since last June has picked up speed. In both January and February it rose at a monthly clip of roughly 0.
At a press conference after its meeting Jerome Powell, the Fed’s chairman, studiously avoided giving any strong hints about when the central bank will make its first cut. But the market—as implied by the price of rate-hedging contracts—expects that it will get under way in June. And Mr Powell was generally satisfied with price trends. “We continue to make good progress in bringing inflation down,” he said.
The Fed has still to travel the last mile in its fight against inflation. Even once the journey comes to an end, a difficult interest-rate question will remain.
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