Fed unlikely to cut rates soon
Officials and market reports suggest the Federal Reserve is unlikely to cut interest rates in the near term because elevated oil and commodity prices keep inflation risks alive. Senior Fed warnings and Treasury commentary say patience is warranted even as some core inflation measures have softened. (reuters.com, thestreet.com)
Federal Reserve officials are signaling that rate cuts are not close, with oil and other commodity prices keeping inflation risks alive. (federalreserve.gov) Minutes from the Federal Open Market Committee’s March 17-18 meeting said crude oil futures jumped about 50% during the period, one-year inflation swaps rose nearly 50 basis points, and futures markets did not fully price in a cut until December. (federalreserve.gov) The same minutes said options markets shifted from expecting one quarter-point cut to a path consistent with no change this year, while the implied probability of rate hikes through early 2027 rose to about 30%. (federalreserve.gov) San Francisco Fed President Mary Daly told Reuters on April 10 that the oil shock from the Iran war “extends the timeline” for getting inflation back to the central bank’s 2% goal and could leave rates in a holding pattern. She said the Fed has kept its target range at 3.50% to 3.75% at both meetings so far this year. (reuters.com) Cleveland Fed President Beth Hammack, a voting member this year, said on CNBC on April 15 that a patient approach is needed because new supply shocks are hitting an economy that already had elevated inflation. Treasury Secretary Scott Bessent also backed a “wait-and-see” approach, according to TheStreet’s account of the interview and related comments. (thestreet.com) Inflation data gave policymakers mixed signals. The Bureau of Labor Statistics said March consumer prices rose 0.9% from February and 3.3% from a year earlier, while core inflation, which strips out food and energy, rose 0.2% on the month and 2.6% on the year. (bls.gov) That split is the problem for the Fed: core prices cooled a bit in March, but energy prices surged 10.9% in the month and gasoline jumped 21.2%, accounting for nearly three quarters of the monthly increase in the overall index. (bls.gov) Markets are lining up behind a hold at the next meeting. The Federal Reserve’s calendar shows the next rate decision on April 29, and CME FedWatch says traders use fed funds futures to gauge the odds of any move. (federalreserve.gov, cmegroup.com) The Fed’s own minutes left room for cuts later in 2026 if inflation falls as expected or the labor market weakens, but they also said persistent oil-driven inflation could require higher rates instead. For now, the message from officials and markets is the same: patience first, cuts later if the data allow it. (federalreserve.gov, cnbc.com)
