President Joe Biden said he stands by his prediction that the Federal Reserve would cut interest rates by the end of the year, despite a new report showing stubbornly high inflation.
“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Biden said Wednesday at a White House press conference alongside Japanese Prime Minister Fumio Kishida. Biden said Wednesday’s report could delay a rate cut by at least a month but was ultimately unsure how the central bank would act.
But the economy still isn’t behaving the way anyone expected.
The job market is growing at a blockbuster pace, even though high interest rates usually slow hiring or cause layoffs. Consumers are spending on essentials and extravagances alike, suggesting people don’t fear trouble ahead. The stock market is up, and worries of a recession have largely faded.
But inflation, after easing remarkably in 2023, has stayed unexpectedly hot since the start of the year. And that’s confounding economists and Federal Reserve officials who are still struggling to understand the post-pandemic world.
Higher borrowing costs were widely expected to tackle inflation with full force, to bring the roaring economy crashing down — or both. Instead, things seem to be settling in a confusing spot, with price increases still above normal, but other parts of the economy holding strong, too. The result is more uncertainty for experts, consumers and businesses alike about what might happen next in an economy that is still resisting the usual rules.
We got through some of that ‘transitory’ part,” said Diane Swonk, chief economist at KPMG, referring to more temporary sources of inflation that drove price increases in 2021 and 2022, such as supply chain problems and energy prices. “We haven’t gotten to the fundamental part — and the hard part.”
When the year started, it appeared the Fed and White House had pulled off the unthinkable: no recession, easing inflation and a still-boomingjob market. That momentum led Fed leaders in December to pencil inthree interest rate cuts this year, projections they repeated last month.
But then January and February price data came in unexpectedly high. For a while, policymakers hoped those were bumps in the road, not a more worrisome trend. But March data, released this week by the Bureau of Labor Statistics, cemented any lingering doubts.
