The Fed hesitant to cut interest rates though inflation is nearly back to 2%

Published

1 year ago

February 9, 2024

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WASHINGTON (AP) From Wall Street traders to car dealers to home buyers, Americans are eager for the Federal Reserve to start cutting interest rates and lightening the heavy burden on borrowers.

The Fed is widely expected to do so this year probably several times. Inflation, as measured by its preferred gauge, rose in the second half of 2023 at an annual rate of about 2% the Fed’s target level. Yet this week, several central bank officials underscored that they werent ready to pull the trigger just yet.

Why, with inflation nearly conquered and the Fed’s key rate at a 22-year high, isn’t now the time to cut?

Most of the Fed’s policymakers have said they’re optimistic that even as the economy and the job market keep growing, inflation pressures will continue to cool. But they also caution that the economy appears so strong that there’s a real risk that price increases could spike again.

And some are worried that if they cut rates now and inflation re-accelerates, then the Fed could be forced into an about-face and have to raise rates again.

“History tells many stories of inflation head-fakes,” said Tom Barkin, president of the Federal Reserve Bank of Richmond, in a speech Thursday.

Inflation had seemed defeated in 1986, Barkin noted, when Paul Volcker was Fed chair.

The Fed reduced rates, but inflation then escalated again the following year, causing the Fed to reverse course,” he said.

“I would love to avoid that roller-coaster if we can, said, Barkin, who is among 12 Fed officials who vote on interest rate policy this year.

Several officials have said they want more time to see if inflation continues to subside. In the meantime, they note, the economy is solid enough that it can thrive without any rate cuts. Last month, for example, Americas employers delivered a burst of hiring, and the unemployment rate stayed at 3.7%.

Theyre going to be glacial, and take their time, said Steven Blitz, chief US economist at GlobalData TS Lombard. Theyre willing to say, We dont know, but we can afford to wait so were going to wait. “

The sturdiness of the economy has also raised questions about just how effective the Feds 11 rate hikes have been. If higher borrowing rates are only barely restraining the economy, some officials may conclude that high rates should stay in place longer or that few rate cuts will be needed.

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I dont feel theres a sense of urgency here, Loretta Mester, president of the Cleveland Federal Reserve, told reporters Tuesday. I think later this year, if things evolve as anticipated, we would be able to start moving the rate down.

Yet their caution carries risks. Right now, the economy appears on track for a soft landing,” in which inflation would be defeated without causing a recession or high unemployment. But the longer that borrowing rates stay high, the higher the risk that many companies and consumers would stop borrowing and spending, weakening the economy and potentially sending it into a recession.

High rates could also compound the struggles of banks that are saddled with bad commercial real estate loans, which would be harder to refinance at higher rates.

The high cost of borrowing has become a headache for David Kelleher’s Chrysler-Jeep dealership just outside of Philadelphia. Just 2 1/2 years ago, Kelleher recalled, his customers could get an auto loan below 3%. Now, they’re lucky to get 5.5%.

Customers who had monthly car lease payments of, say, $400 three years ago are finding that with vehicle prices much higher and interest rates up, their monthly payments would be closer to $650. The trend is pushing many of his customers toward lower-priced used cars or no purchase at all.

We need the government to address the interest rates … and understand that theyve accomplished their goal of lowering inflation,” Kelleher said. If interest rates can come down, I think were going to start selling more cars.

Kelleher is likely to get his wish by May or June, when most economists expect the Fed to start reducing its benchmark rate, which is now at about 5.4%. In December, all but two of the 19 policymakers that participate in the Fed’s policy discussions said they expect the central bank to cut rates this year. (Twelve of those 19 actually get to vote on rate policies each year.)

Yet economic growth has accelerated since then. In the final three months of last year, the economy expanded at an unexpectedly strong 3.3% annual rate. Surveys of manufacturers and service-providers, such as retailers, banks, and shippers, also reported that business perked up last month.

Collectively, the latest reports suggest that the economy may not be headed for a soft landing but rather what some economists call a no landing. By that they mean a scenario in which the economy would remain robust and inflation an ongoing threat, potentially stuck above the Fed’s target. Under this scenario, the Fed would feel compelled to keep rates at elevated levels for an extended period.

Powell said last week that while the Fed wants to see continued strong growth, a strong economy does threaten to send inflation up.

I think that is a risk … that inflation would accelerate, Powell said. I think the greater risk is that it would stabilize at a level meaningfully above 2%. … Thats why we keep our options open here and why were not rushing.”

Other officials this week drove home the point that the Fed is trying to balance the risk of cutting rates too soon which might cause inflation to surge again and keeping rates too high for too long, which could trigger a recession.

At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce rates, Andrea Kugler, a recently appointed Fed governor said Wednesday in her first public speech. On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer.

Some analysts have pointed to signs that the economy is becoming more productive, or efficient, allowing it grow faster without necessarily increasing inflation. Yet productivity data is notoriously hard to measure, and any meaningful improvement wouldn’t necessarily become apparent for years.

Still, maybe the economy can take higher interest rates than we thought in 2019 before the pandemic, said Eric Swanson, an economist at the University of California, Irvine.

If so, that might not just delay the Fed’s rate cuts, but result in fewer of them. Fed officials are still saying they plan to cut rates perhaps three times this year, below the five or six that some market analysts foresee.

UK

Martin Lewis reveals who is due for car finance compensation – and how much they’ll get

Published

48 mins ago

August 4, 2025

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Martin Lewis reveals who is due for car finance compensation - and how much they'll get

Martin Lewis says motorists who were mis-sold car finance are likely to receive “hundreds, not thousands of pounds” – with regulators launching a consultation on a new compensation scheme.

The founder of MoneySavingExpert.com believes it is “very likely” that about 40% of Britons who entered personal contact purchase or hire purchase agreements between 2007 and 2021 will be eligible for payouts.

“Discretionary commission arrangements” saw brokers and dealers charge higher levels of interest so they could receive more commission, without telling consumers.

Speaking to Sky News Radio’s Faye Rowlands, Lewis said: “Very rarely will it be thousands of pounds unless you have more than one car finance deal.

“So up to about a maximum of £950 per car finance deal where you are due compensation.”

Lewis explained that consumers who believe they may have been affected should check whether they had a discretionary commission arrangement by writing to their car finance company.

However, the personal finance guru warned against using a claims firm.

“They’re hardly going to do anything for you and you might get the money paid to you automatically anyway, in which case you’re giving them 30% for nothing,” he added.

Yesterday, the Financial Conduct Authority said its review of the past use of motor finance “has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers”.

The FCA’s statement added that those affected “should be appropriately compensated in an orderly, consistent and efficient way”.

Lewis told Sky News that the consultation will launch in October – and will take six weeks.

“We expect payouts to come in 2026, assuming this will happen and it’s very likely to happen,” he said.

“As for exactly how will work, it hasn’t decided yet. Firms will have to contact people, although there is an issue about them having destroyed some of the data for older claims.”

He believes claims will either be paid automatically – or affected consumers will need to opt in and apply to get compensation back.

What motorists should do next

The FCA says you may be affected if you bought a car under a finance scheme, including hire purchase agreements, before 28 January 2021.

Anyone who has already complained does not need to do anything.

The authority added: “Consumers concerned that they were not told about commission, and who think they may have paid too much for the finance, should complain now”.

Its website advises drivers to complain to their finance provider first.

If you’re unhappy with the response, you can then contact the Financial Ombudsman.

Any compensation scheme will be easy to participate in, without drivers needing to use a claims management company or law firm.

The FCA has warned motorists that doing so could end up costing you 30% of any compensation in fees.

The FCA estimates the cost of any scheme – including compensation and administrative costs – to be no lower than £9bn.

But in a video on X, Lewis said that millions of people are likely to be due a share of up to £18bn.

The regulator’s announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.

World

‘It is truly monstrous’: Inside the besieged Sudanese city where families are forced to eat animal feed to live

Published

1 hour ago

August 4, 2025

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'It is truly monstrous': Inside the besieged Sudanese city where families are forced to eat animal feed to live

Al Fashir is being suffocated to death.

The paramilitary Rapid Support Forces (RSF) has held the capital of North Darfur hostage in a 14-month siege – blocking food or fuel from entering the locality and forcing starvation on its 900,000 inhabitants.

The entire city is currently a militarised zone as Sudan‘s army and the Darfur Joint Protection Force fend off the RSF from capturing the last state capital in the Darfur region not currently under their control.

Rare footage sent to Sky News from inside al Fashir town shows streets emptied of cars and people.

The city’s remaining residents are hiding from daytime shelling inside their homes, and volunteers move through town on donkey carts distributing the little food they can find.

‘It is truly monstrous’

Journalist Muammer Ibrahim sent Sky News voice notes from there.

“The situation is monstrous,” he says. “It is truly monstrous.

“The markets are emptied of food and partially destroyed by shelling. Civilians were killed at the market, just a day ago. People have fled market areas but there is also shelling in residential areas. Every day, you hear of 10 or 12 civilians killed in attacks.”

His voice sounds shallow, weakened by the dire conditions, and gunshots can be heard in the background.

“The intense fighting has meant that people cannot safely search for anything to eat, but there is also nothing for their money to buy. The markets are depleted. Hundreds of thousands here are threatened by a full-blown famine,” he says.

“There has been a full blockade of any nutritional supplies arriving in al Fashir since the collapse of Zamzam camp. It closed any routes for produce or supplies to enter.”

The RSF ransacked the famine-ridden Zamzam displacement camp 7.5 miles (12km) south of al Fashir town in April, after the military reclaimed Sudan’s capital Khartoum.

The United Nations believes that at least 100 people were killed in the attacks, including children and aid workers.

The majority of Zamzam’s half a million residents fled to other areas for safety. Hundreds of thousands of them are now squeezed into tents on the edges of al Fashir, completely cut off from humanitarian assistance.

The capture of the camp allowed the RSF to tighten their siege and block off the last remaining supply route. Aid convoys attempting to enter al Fashir have come under fire by the RSF since last year.

“Already, between June and October 2024, we had several trucks stuck and prevented by the Rapid Support Forces from going to their destination which was al Fashir and Zamzam,” says Mathilde Simon, project coordinator at Medicins Sans Frontieres.

“They were prevented from doing so because they were taking food to those destinations.”

“There was another UN convoy that tried to reach al Fashir in the beginning of June. It could not, and five aid workers were killed.

“Since then, no convoy has been able to reach al Fashir. There have been ongoing negotiations to bring in food but they have not been successful until now.”

Families are resorting to eating animal feed to survive.

Videos sent to Sky News by volunteers show extreme suffering and deprivation, with sickly children sitting on thin straw mats on the hard ground.

Community kitchens are their only source of survival, only able to offer small meals of sorghum porridge to hundreds of thousands of elderly men, women and children facing starvation.

The question now is whether famine has fully taken root in al Fashir after the collapse of Zamzam camp and intensified RSF siege.

‘Malnutrition rates are catastrophic’

“The lack of access has prevented us from carrying out further assessment that can help us have a better understanding of the situation, but already in December 2024 famine was confirmed by the IPC Famine Review Committee in five areas,” says Mathilde.

“It was already confirmed in August 2024 in Zamzam but had spread to other displacement camps including Abu Shouk and it was already projected in al Fashir.

“This was more than eight months ago and we know the situation has completely worsened and malnutrition rates are absolutely catastrophic.”

Treasurer of al Fashir’s Emergency Response Rooms, Mohamed al Doma, believes all signs point to a famine.

He had to walk for four hours to escape the city with his wife and two young children after living through a full year of the siege and offering support to residents as supplies and funding dwindled.

“There is a famine of the first degree in al Fashir. All the basic necessities for life are not available,” he says.

“There is a lack of sustenance, a lack of nutrition and a lack of shelter. The fundamental conditions for human living are not living. There is nothing available in the markets – no food or work. There is no farming for subsistence. There is no aid entering al Fashir.”

“All of this points towards a full-blown famine.”

UK

UK weather: Storm Floris sparks amber warning – with trains cancelled

Published

3 hours ago

August 4, 2025

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UK weather: Storm Floris sparks amber warning - with trains cancelled

Storm Floris is nearing the UK – with train companies in the hardest-hit areas urging passengers not to travel today.

The Met Office has issued an amber “danger to life” warning for wind in parts of Scotland, with gusts of up to 90mph possible.

That alert is in force from 10am until 10pm, with forecasters warning “unusually strong” winds could close roads and damage buildings.

Check the latest weather forecast here

A wider yellow warning – covering the North of England and Northern Ireland – is also active between 6am this morning and 11.59pm tonight.

Train operator LNER has warned passengers not to travel north of Newcastle, while Avanti West Coast has advised its customers not to travel north of Preston as it will be “heavily affected” by the weather.

“We’re expecting heavy rain and high winds to result in disruption of services,” LNER said in a statement.

Some trains have already been cancelled in Scotland, with Network Rail saying several lines will be closed from 12pm. Other routes will run with a reduced timetable and longer journey times.

Among the routes set to close at midday are Edinburgh to Fife, Perth to Dundee, and Aberdeen to Inverness, as well as the West Highland Line.

The storm could also lead to road closures – and several ferry services have already been cancelled by Scottish operator CalMac.

The Met Office said that much of Scotland, particularly western coastal areas, will be battered by heavy rain and windy conditions.

The strongest gusts are expected this afternoon and into the evening – but a Met Office spokesperson warned “there remains some uncertainty in the depth and track of Floris”.

Sky News’ weather presenter Jo Wheeler said: “Storm Floris is likely to bring a spell of weather not usually associated with the height of summer.

“Travelling across the Atlantic, this otherwise unremarkable, low-pressure system will cross a powerful jet stream, exiting on the cold side, renowned for storm formation.”

She said inland gusts of 50mph to 60mph are widely possible, potentially reaching 80mph to 90mph over exposed coasts, hills and bridges.

“The rain associated with this storm will largely clear through early tomorrow, but it’s as the rain goes that the winds start to strengthen,” she warned.