The Federal Reserve Should Wait Before Cutting Again
Interest rates might need to fall further in 2025, but it’s too soon to say.
What’s the hurry?
Photographer: Yuki Iwamura/Bloomberg
Investors see recent inflation data as a green light for the Federal Reserve to trim another quarter point from the short-term interest rate. When the central bank’s policymakers meet this week, they’d be wise to say: “Not so fast.” Further cuts will probably be needed in 2025, but for now a pause makes more sense.
Consumer-price inflation rose to 2.7% in the year to November, up from 2.6% in the year to October. Stripping out food and energy prices, so-called core CPI inflation stood at 3.3% for the fourth month running. Markets greeted these numbers as largely in line with expectations — and concluded there was no need to adjust their forecast of another cut in the policy rate. But that’s the wrong test. The question isn’t whether the latest numbers were a nasty surprise, but whether inflation is on track to return to its 2% target.