The Fed's Interest Rate Drop Still Holds High Inflation

JAKARTA - After seeing higher inflation than expected for three consecutive times, Federal Reserve (The Fed) officials have become more careful in assessing the possibility of lowering interest rates this year. The Fed plans to hold a meeting to discuss its interest rate policy on Wednesday, May 1.

Reporting from ANTARA, investors on Wall Street now estimate that there will only be one decrease in the benchmark interest rate in 2024. Interest rates are currently at the highest level in 23 years by 5.3%, after experiencing 11 gains ending in July 2023.

In the last meeting of the Fed on March 20, 2024, policymakers projected three lower interest rates in 2024. The Fed's lower interest rate will reduce loan costs for consumers and businesses over time.

Most economists are still expecting two cuts this year. However, many predict a drop in interest rates may only happen once or even not at all. This is due to higher inflation than expected.

Inflation reached an annual rate of 4.4% in the first three months of 2024, up from 1.6% in the last quarter of 2023 and well above the Fed's target of 2%.

In a recent statement, Fed Council Chairman Jerome Powell indicated that the rate of price increases has basically weakened the confidence of Fed officials that inflation will return to their target, thereby reducing the possibility of lowering interest rates in the near future. He also stated that the Fed will not lower interest rates as long as inflation remains high

"If higher inflation continues, we can maintain the current rate (interest rate) as long as necessary," said Powel.