Interest rate cuts have been the main focus for Wall Street ever since the end of last year, when Federal Reserve officials indicated they intended to lower rates. But stubborn inflation now has some investors wondering about the exact opposite: a rate hike.
Inflation slowed substantially in 2023 as the Fed lifted rates to nearly a quarter-century high and held them at that level since July. But recent economic data shows there hasn’t been much improvement this year.
Then came March’s Consumer Price Index report, which showed prices rose 3.5% last month from a year earlier, up considerably from February’s 3.2% and higher than economists’ expectations. That also marked the highest reading in half a year.
Surging gas prices and still-high housing costs drove the hotter-than-expected reading. The report spooked Wall Street, triggering a mass selloff on Wednesday and reducing the odds of a June rate cut, according to futures.
Still, most Fed officials have signaled that they plan to cut rates this year if the economy evolves as expected. But disappointing inflation readings like Wednesday’s are likely giving them pause. And if the inflation situation worsens even further, the Fed may even have to consider raising rates.
Fed Governor Michelle Bowman, arguably the central bank’s most hawkish voice, recently said that she would favor a rate hike “should progress on inflation stall or even reverse.”
Minneapolis Fed President Neel Kashkari last week floated the possibility of not cutting rates at all this year. He also said rate hikes are “certainly not off the table.” But he said they aren’t likely. Kashkari is not voting on monetary policy decisions this year.
Like Bowman and Kashkari, New York Fed President John Williams said rate hikes…
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