Coming down the mountain of high rates gets mesa-d up.
Illustration by Elaine He. Photo by Education Images/Universal Images Group via Getty Images
Central Banks Started a Rates Descent They Can’t Finish
The Fed’s cold feet on cuts shows that the world is down from a peak, but the changing terrain is no less dangerous.
Central banks’ climbdown from the post-pandemic inflation peaks commenced amid both optimism and trepidation. As 2024 draws to a close, reality has set in, trepidation is triumphing, and rates have been recalibrated accordingly. This was true even before the Federal Reserve’s strongly hawkish meeting this week.
It’s become customary to compare rate campaigns with scaling mountains. A year ago, the hope was that rates would make a Matterhorn peak (diagonally up and then straight back down again), rather than a Table Mountain with a long plateau. Now, central banks seem to be navigating a mesa with high interest rates and occasional plateaus punctuated by cliffs. It is still premature, alas, to declare victory over inflation. And coordination among central banks — vital for safety, just as it is for mountaineers on a descent — has proved hard to achieve.