The Fed Won’t Climb Down Yet. Others Can’t Wait
Our series on The Year of Descending Dangerously shows big central banks can’t hang on forever for the US to start cutting rates — but still fear going first.
It’s not just who goes first, it’s how. Above: Ridge below Bruach Na Frithe, Isle of Skye, Scotland.
Photographer: Ian Cumming/Design Pics Editorial/Universal Images Group/ Getty
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Developed market central banks are facing an unwanted problem: It no longer seems certain that they can manage a descent to pre-pandemic levels of inflation or interest rates. These banks all reacted in nearly identical ways to deal with the inflation surge driven by Covid-19, but the impact of higher interest rates has been different. In the US, the optimism for rate cuts has diminished significantly since the start of the year. That’s because the disinflation process that fueled this expectation has stalled, while the economy remains robust. There’s an ever increasing possibility of an inflation resurgence that might even push rates higher again. The latest macro data, showing the US employment cost index for the first quarter, did nothing to allay fears that the labor market was still too strong for price rises to moderate. A rise of 1.2% for the quarter was far ahead of the market’s expectations, and presumably the Fed’s hopes: