The Fed’s Foot-Dragging Is Making the Last Mile Harder

Most people who keep tabs on the Federal Reserve would say it waited too long to raise interest rates when inflation took off in 2021. Now the US central bank is arguably falling behind the curve again as inflation moderates and policymakers stall on bringing rates back down. The risk in waiting is that high rates may finally start to inflict harm on an economy that’s so far managed to defy widespread expectations for a significant slowdown.

The Fed is in the long-awaited last mile of its campaign against the bout of pandemic-induced inflation that saw policymakers’ preferred gauge accelerate from 1.8% in February 2021 to a four-decade high of 5.6% in February 2022. Bloomberg Economics estimates data out later this month will show it had returned to 2.8% as of February 2024. That would put it more than three-quarters of the way back to the central bank’s 2% target from the peak two years ago. Yet at their meeting on March 19-20, Fed officials unanimously elected to hold the benchmark federal funds rate in a range of 5.25 to 5.5%, where it’s been since last summer.