As much as President Biden creepily whispers into a microphone that his 'Bidenomics' plan is working, it sure seems to be sputtering along. Inflation, while coming down very slightly, still sits well above where the Federal Reserve would like to see it, which is around two percent.
Inflation rates currently sit around three percent, with no real indicators that it plans to drop any quicker. Concerns over this have been shown by looking at the latest Federal Reserve meeting minutes, where they show no indication of cutting rates anytime soon. What started as March predictions has now been pushed out further and further.
Economist Vance Ginn says there is really no reason for them to begin cutting any time before spring.
"My guess is they won't lower it until at least May, but probably closer to somewhere in the summer," he says. "They could do something in July...but it will all depend on inflation."
On a monthly basis in the last year, the pace of inflation actually increased to three-tenths of a percent, equating to about 3.6 percent annual inflation. Whoelsale inflation also surprised, increasing by double what was forecasted.
The art of cutting the interest rates, while we all want it, is like walking a tight rope for the Fed.
"We will see increased in prices for consumers, as they pass along the prices being paid at the wholesale level, which will play into the Fed's decisions...and they do not have any reason to cut," he says. "We can risk spikes like we saw in the late 1970s...where we cut too quick, and inflation rose back to being worse than before...we cannot fall into that trap."
As we roll toward March, it has been about two years since the Fed began raising the interest rates. Waiting until July for a cut would mark one year since they paused any new rate hikes. Investors are already pegging a greater than 66 percent possibility that interest rates remain unchanged at the May meetings.
Speaking of the late 70s and early 80s as well, the chairman of the Federal Reserve then was Paul Volcker, who famously established that for things to get better with interest rates and inflation, the average American standard of living had to dip first.
Currently, if we had followed the Volker system of cutting money supply to get inflation under control, we would not be in this mess.
"We would have had inflation much lower a long time ago...but the Fed had left interest rates too low, for too long, before raising them...which contributed to this pressure," he says.
Another factor in the Feds decision to keep rates higher for longer is strong labor market numbers. The economy has added jobs every single month since December 2020, and added 353,000 more jobs in January.
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