Higher for longer. That’s what numerous Federal Reserve officials have been saying about interest rates for some time. Nonetheless, many investors don’t take them at their word, and expect the central bank, sooner or later, to “pivot” and reduce short-term rates a lot, once the inflation beast is conquered.
Fed Vice Chair Lael Brainard recently cautioned the public that rates would have to stay on the high side for some time to ensure that inflation indeed is on the decline. Yes, inflation is cooling, as the Consumer Price Index report for December indicates: sliding to 6.5% annually, from 7.1% the month prior. Nonetheless, 6.5% is higher than the CPI has been in four decades. There’s no rule that guarantees that, if inflation is going down, it will continue to decline. It needs some help from the Fed.
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