Washington – Even when the economy undergoes what can be Heartbreaking changesThe Federal Reserve on Wednesday is expected to indicate that it could reduce its key interest rate twice this year, the same forecast as issued in December.
However, the reasons for these cuts can change dramatically, depending on how the economy goes to the economy.
What were ever seen as reductions of “good news” rates in response to a constant decrease in inflation to the 2%Fed target, could now become “bad news” cuts that would be implemented to compensate for an economy that fights in the width of generalized tariffs, rapid cuts in government spending and an increase in economic concern.
At the end of last year, the FED reduced its key interest rate three times at approximately 4.3% of 5.3%. The Fed had rapidly increased its rate to combat inflation, and as the price growth was directed lower, that allowed the Central Bank to reverse some of those rate increases. In September, inflation fell at a minimum of 3 1/2 years 2.4%.
However, inflation then marked more for four consecutive months, before it finally fell again in February, at an annual rate of 2.8%. Partly due to that reversal, President Jerome Powell has stressed that the Fed is in waiting and seeing mode, since it evaluates the impact of President Donald Trump’s policies on the economy.
Until now, the feeling of the consumer has fallen sharply As Americans care that inflation will increase in the coming months. Small businesses Inform a much more uncertain economic perspectivewhich can make them reduce hiring and investment.
High -end and lowest cost retailers They have warned That consumers are becoming more cautious, since they expect prices to increase due to rates. Retail sales increased modestly last month after a strong fall in January. Housing and contractor builders expect the construction and renovations of homes Be more expensive.
On Tuesday, the Fed reported that manufacturing production jumped last month, with an increase in a peak in cars production. Some of that could have reflected purchases of higher cars of consumers who seek to get ahead of tariffs. The construction of a new home also grew faster than expected.
Many economists have abruptly reduced their forecasts for growth this year, with Barclays, a bank, which now predicted a growth of only 0.7%, below 2.5% in 2024. And Goldman Sachs economists now expect inflation, excluding the volatile categories of food and energy, higher to 3% at the end of this year, instead of their current level of 2.6%.
Slower growth, if unemployment also increases, and greater inflation would put the Fed in a very difficult place. In general, when companies begin to reduce workers, Fed would reduce rates to stimulate more loans and expenses and boost the economy.
However, if inflation became higher, I would like to maintain high rates to launch growth and restrict inflation. When the Fed raises its key interest rate, it tends to push other higher indebtedness costs, even for mortgages, car loans, commercial loans and credit cards.
Economists will closely observe the Powell press conference on Wednesday to see if it will indicate how Fed would handle such a situation.
But Powell will probably double his recent efforts to underline that the Fed can, for now, see from the barrier.
“The costs of being cautious are very, very low,” said Powell Earl this month. “The economy is fine, it doesn’t need us to do anything, actually.”
Separately, Christopher Waller, a member of the Fed Governing Board, said previously that the Fed could still reduce rates this year, even if tariffs were imposed, while inflation still fell once the impact was excluded.
However, earlier this month, in an interview with the Wall Street Journal, he acknowledged that mocking the impact of prices tariffs would be difficult.
“You are trying to find the signal of what is fundamental and what perhaps is tariff noise,” he said. “And that is difficult.”
