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Are US interest rates high enough to beat inflation? The Fed will take its time to find out

By Christopher Rugaber - May 13, 2024, 08:21 AM ET
Last Updated - May 13, 2024, 08:21 AM EDT
Federal Reserve Rate Cuts
FILE - Federal Reserve Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, May 1, 2024. The sharp interest rate hikes of the past two years will likely take longer than previously expected to bring down inflation, several Federal Reserve officials have said in recent comments, suggesting there may be few, if any, rate cuts this year. (AP Photo/Susan Walsh, File)

The sharp interest rate hikes of the past two years will likely take longer than previously expected to bring down inflation, several Federal Reserve officials have said in recent comments, suggesting there may be few, if any, rate cuts this year

WASHINGTON (AP) — The sharp interest rate hikes of the past two years will likely take longer than previously expected to bring down inflation, several Federal Reserve officials have said in recent comments, suggesting there may be few, if any, rate cuts this year.

A major concern expressed by both Fed policymakers and some economists is that higher borrowing costs aren't having as much of an impact as economics textbooks would suggest. Americans as a whole, for example, aren't spending much more of their incomes on interest payments than they were a few years ago, according to government data, despite the Fed's sharp rate increases. That means higher rates may not be doing much to limit many Americans' spending, or cool inflation.

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“What you have right now is a situation where these high rates aren’t generating more braking power on the economy,” said Joseph Lupton, global economist at J.P. Morgan. “That would suggest that they either need to stay high for longer or maybe even higher for longer, meaning rate hikes might come into the conversation.”

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