Fed Unlikely to Cut Rates This Year Amid 2.6% Inflation

Economists on Wall Street have expressed skepticism about the likelihood of the Federal Reserve cutting interest rates this year, citing persistent inflationary pressures and the complex nature of economic data. The Personal Consumption Expenditures (PCE) inflation rate, a key indicator monitored by the Fed, is expected to remain above the 2% target, making a rate cut less probable.

Stephen Juneau, an economist at Bank of America, highlighted the challenges in interpreting inflation data. He noted that the inflation process in 2025 did not start smoothly, and the latest PCE data is expected to show a year-over-year inflation rate of at least 2.6%, if not higher. This trend suggests that inflation is unlikely to decrease enough to warrant a rate cut by the Fed this year, especially in an environment where policy rates are pushing inflation higher.

The Fed's cautious approach is further supported by recent economic indicators. While the annual inflation rate dipped to 2.8% in February from 3% in January, it remains above the Fed's target. The central bank is closely monitoring other economic indicators, such as a low unemployment rate and rising wages, which continue to support consumer spending. These factors contribute to the Fed's reluctance to lower rates too quickly, as inflation has not yet been fully tamed.

Economists suggest that the Fed is likely to maintain steady interest rates in March, with a potential rate cut in May. However, the economic uncertainty caused by recent tariffs and other factors has added to the complexity of the Fed's decision-making process. The central bank must balance the need for economic growth with the risk of inflation, making it cautious about lowering rates too quickly. Despite the easing of inflationary pressures, the Fed is likely to pause on rate cuts until later in the year, given the persistent inflationary pressures and the need to ensure economic stability.