Fed Cuts Pushed Back
- Economists now expect the Federal Reserve to delay interest-rate cuts because war-driven energy shocks lifted inflation risk. - A Reuters poll shows markets generally expect the Fed to hold rates until at least September before cautious cuts. - That outlook tightens borrowing costs and keeps travel and consumer financing under pressure amid energy-driven price risks ( ).
Economists now expect the Federal Reserve to wait until at least September before cutting interest rates, after war-driven fuel costs lifted inflation risks. (usnews.com) In a Reuters poll conducted April 17-21, 56 of 103 economists said the Fed’s benchmark rate would still be 3.50% to 3.75% at the end of September. In late March, nearly 70% had expected at least one cut by then. (usnews.com) The Fed itself held rates steady on March 18 at 3.50% to 3.75% and said inflation remained “somewhat elevated.” Its statement also said developments in the Middle East created added uncertainty for the U.S. outlook. (federalreserve.gov) Rate cuts matter because the Fed lowers borrowing costs by trimming its benchmark rate, which influences credit cards, auto loans, business debt and some mortgage pricing over time. When cuts get delayed, households and companies keep facing higher financing costs for longer. (federalreserve.gov) The inflation problem in March was concentrated in energy. The Consumer Price Index rose 0.9% in the month and 3.3% from a year earlier, while the energy index jumped 10.9% and gasoline alone rose 21.2% in March. (bls.gov) That energy surge spilled into other consumer prices. The Bureau of Labor Statistics said airline fares were among the indexes that increased in March, alongside apparel, household furnishings, education and new vehicles. (bls.gov) Reuters reported that the nearly two-month war in the Middle East had pushed up fuel prices, hurt consumer confidence and erased earlier market pricing for near-term Fed cuts. The same poll still found 71 economists expecting at least one cut by the end of 2026, but nearly a third now see no change this year. (usnews.com) Michael Gapen, chief U.S. economist at Morgan Stanley, told Reuters he still expects the Fed to ease later this year because higher oil prices may lift headline inflation without spreading broadly into core inflation. He added that the main risk is that inflation does not cool enough and the Fed stays on hold. (usnews.com) For now, traders are bracing for another hold at the Fed’s next meeting. CME FedWatch says fed funds futures are used to estimate the odds of policy moves, and the next Federal Open Market Committee meeting is one week away. (cmegroup.com)
