Inflation still too high to lower interest rates: CEI analysis

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The Consumer Price Index report for March again read 0.4 percent, though the 12-month rate is now up to 3.5 percent. CEI senior economist Ryan Young explains why this news may make the Federal Reserve hold off on cutting interest rates at its next meeting.

“If the Federal Reserve was thinking of cutting interest rates at its next meeting later this month, it probably isn’t now. Just as the last mile is the costliest part of shipping, the last percentage point is proving to be the hardest part of fighting inflation.

“The biggest remaining obstacle is credibility. If the government goes back into stimulus mode at the first sign of an economic downturn, then inflation will go right back up, and markets know this. People don’t trust either party to restrain their spending.

“While Fed Chairman Jerome Powell has said and done most of the right things, there is only so much he can do. If Congress and President Biden hand him another big spending bill, he more or less has to help finance it.

“Hopefully this does not mean that some kind of economic stress test is needed before inflation expectations go back down. But if that is the case, then inflation could linger at over 3 percent annually until there is another downturn. With a strong economy and low unemployment, that could take a while, which isn’t the worst thing.”