The high rates of interest are usually not going away any time soon – a business economist explains why

The Federal Reserve kept rates of interest stable at its policy meeting on May 1, 2024, dashing the hopes of potential homebuyers and others who had hoped for a cut. Interest rates not only remain at their current level – a 23-year high – For no less than one other month, there’s little reason to consider the Fed will begin tapering by fall. In fact, if inflation starts to rise again, it’s plausible – although currently unlikely – that the Fed will consider raising rates of interest by one other 25 basis points or so in the approaching months.

Just just a few months ago, investors were betting that 2024 would come a series of rate of interest cuts.

But speak as a business economistI feel it's clear that recent economic data discouraged the Fed from easing rates because it gathered for its final policy meeting. There aren’t any signs of an impending recession. Employment continues to be quite high within the US 303,000 latest jobs in March 2024 and 270,000 in February, and the unemployment rate – at 3.8% in March – only ticked barely upwards 3.5% in March 2023. The increase is solely not large enough to boost concerns that prime rates of interest will slow the economy too abruptly.

While it’s true that inflation-adjusted gross domestic product growth increased within the fourth quarter of 2023 after a notable annual increase of 4.8%, slowed significantly to 1.6% Slower growth in the primary quarter of 2024 is strictly what the Fed has been attempting to create by raising rates of interest. By controlling demand for goods and services, price growth slows. This continues to be not an indication of a recession.

The inflation challenge

Reduce inflation rates to the Fed's 2 percent goal, a figure that Federal Reserve Chair Jerome Powell repeated several times during his term press conference – was difficult to say the least. The Fed began raising rates of interest in early 2022. Initially, it had some success in reducing inflation reached a peak of about 9% this yr. In fact, as Powell said, the decline in inflation has been rapid by historical standards, due partly to each rate of interest increases and easing of international inflation Supply chain disruptions. But there was little decline since June 2023, when inflation was 3.1%. In fact, growth in the buyer price index has not fallen below 3% since March 2021.

One of the fundamental reasons inflation stays high is that there are usually not enough staff. Economic growth increases demand for labor, and labor supply simply isn't maintaining. The result’s higher salaries. With higher wages, corporations elsewhere must cut costs, raise prices, or each to keep up profitability.

Another key inflation driver that Powell was careful to say is rising rental costs. Due to higher mortgage rates, the housing market has slowed significantly, and so have many Americans – especially younger ones Renting as an alternative of shopping for. The ongoing demand for apartments, combined with increased costs for maintenance and maintenance of rental properties, is driving up rents.

Could migrations happen in the long run?

The next tariff decision is due in June “unlikely” that there shall be a risesaid Powell during his press conference. He also noted that current high rates of interest must be enough to curb inflation.

In fact, he noted, the number of latest job openings has declined from a peak of 12.1 million in March 2022 8.4 million in March 2024. While this continues to be high in absolute terms, it’s a major decline that implies lower demand for staff. This should then reduce the pressure on wages.

So what about rate of interest cuts? After all, some observers had expected rate of interest cuts start this summer. Based on the data I'm , that's just not going to occur. A move won’t happen until September on the earliest. Until then, expect a sluggish real estate market and expensive borrowing, but moderate inflation and slow but regular growth.

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