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

Published

2 years ago

February 12, 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.

World

More than 1,100 confirmed dead and 800 missing in catastrophic Asia floods

Published

10 mins ago

December 1, 2025

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More than 1,100 confirmed dead and 800 missing in catastrophic Asia floods

Rescue and recovery and efforts are under way in parts of South and Southeast Asia where the number of those killed in devastating floods continues to rise.

The extreme weather last week has killed at least 366 people in Sri Lanka, 604 in Indonesia, and 176 in Thailand, according to authorities.

Rescuers are searching for 464 missing people in Indonesia, and a further 367 in Sri Lanka, after a cyclone and other storms triggered flooding and landslides in the region.

In a post on X, the King and Queen Camilla said they were “deeply saddened” to hear about devastating storms and added their “heartfelt condolences” to the families of those who have died.

Hundreds of thousands in shelters in Sri Lanka

Sri Lankan authorities said about 218,000 people were in temporary shelters after downpours that triggered landslides, primarily in the tea-growing central hill country.

People were seen salvaging belongings from flooded homes along the banks of the Kelani River, near the capital Colombo on Monday.

Meanwhile, train and flight services have resumed after being disrupted last week, but schools stayed closed, officials said.

Cyclone Ditwah was the “largest and most challenging” natural disaster in Sri Lanka’s history, President Anura Kumara Dissanayake said.

The cyclone also brought heavy rain to India’s southern state of Tamil Nadu over the weekend, with authorities saying three people were killed in rain-related incidents.

The storm, which as of 5pm UK time on Monday was about 50km (30 miles) off the coast of the state capital Chennai, has weakened into a “deep depression” and is expected to weaken further in the next few hours, weather officials said.

Over a million affected in Indonesia

More than 28,000 homes have been damaged in Indonesia, with 1.4 million people affected according to the country’s disaster management centre.

The country’s president, Prabowo Subianto, called it a catastrophe and pledged to rebuild infrastructure as he visited the three affected provinces on Monday, where nearly 300,000 people have been displaced by the flooding.

‘Nothing remains’

“The water just rose up into the house and we were afraid, so we fled. Then we came back on Friday, and the house was gone, destroyed,” said Afrianti, 41, who only goes by one name and lives in West Sumatra’s Padang city.

She and her family of nine have made their own tent shelter beside the single wall that remains of their home.

“My home and business are gone, the shop is gone. Nothing remains. I can only live near this one remaining wall,” she said.

Highest one-day rainfall in Thai city for 300 years

In Thailand, flooding in eight southern provinces affected about three million people and led to a major mobilisation of its military to evacuate critical patients from hospitals and reach people stuck in floodwaters for days.

In the worst-affected city of Hat Yai, a southern trading hub, 335mm (13 inches) of rain fell on 21 November, its highest single-day tally in 300 years, followed by days of unrelenting downpours.

King offers ‘heartfelt condolences’

King Charles and Queen Camilla responded to the crisis in a statement posted on X and praised the work of emergency responders: “We wish to express our heartfelt condolences to the families of those who have so tragically lost their lives.

“Our thoughts and prayers are with the many whose homes have been destroyed and to all who are awaiting news of loved ones missing.

“These disasters remind us of the increasingly urgent need to restore the balance and harmony of Nature.”

Thailand’s Prime Minister Anutin Charnivirakul expects residents to be able to return home within seven days, a government spokesperson said on Monday.

The first batch of compensation payments is set to be distributed on Monday, starting with 239m baht (£5.6m) for 26,000 people, the spokesperson added.

In Malaysia there have been at least three deaths and authorities are still on alert for a second and third wave of flooding as 11,600 remain in evacuation centres.

UK

US and UK agree zero tariffs on pharmaceuticals

Published

10 mins ago

December 1, 2025

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US and UK agree zero tariffs on pharmaceuticals

The US has agreed to spare the UK from threatened trade tariffs on pharmaceutical products.

The announcement was made following months of uncertainty over whether exports from the UK, and elsewhere across Europe, would be subject to steep charges.

Via the policy update, the UK has become the only country in the world to secure a zero per cent tariff on pharmaceuticals exported to the US. Tariffs are taxes imposed on imports into a country.

In return, the UK has agreed to increase the baseline threshold used to assess if medicines can be used by the NHS.

Money latest: The earners most affected by £2k salary sacrifice cap

The National Institute for Health and Care Excellence (NICE) will increase the base threshold by 25%: from £20,000-£30,000 to £25,000-£35,000.

It means NICE will be able to approve medicines that deliver significant health improvements but might have been declined purely on cost-effectiveness grounds, the government said.

This could include breakthrough cancer treatments, therapies for rare diseases, and innovative approaches to conditions that have long been difficult to treat, it added.

This will give NICE the opportunity to approve more new medicines and allow a greater number of patients to benefit from them, the Association of the British Pharmaceutical Industry (ABPI) said.

It pointed out that NICE’s baseline cost-effectiveness threshold has not been increased for over 20 years.

A US government statement said the UK will “reverse the decade-long trend of declining National Health Service (NHS) expenditures on innovative, life-saving medicines, and increase the net price it pays for new medicines by 25%”.

US trade representative Jamieson Greer said the US “will work to ensure that UK citizens have access to latest pharmaceutical breakthroughs”.

The background

US President Donald Trump has long complained that Europe does not pay enough for US drugs.

America and the UK agreed in May to seek a deal on the proviso that firms secured a better operating environment in Britain.

Criticism includes the concern that firms lose out on revenue due to a pricing regime which prioritises low costs for the NHS over incentives to invest.

In October, the science minister Patrick Vallance told MPs, as talks with the US continued, that many drugs available in the UK would see an “inevitable” price increase.

Environment

Lucid (LCID) calls out rivals as the 2026 Air remains the most efficient EV in the US

Published

26 mins ago

December 1, 2025

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Lucid (LCID) calls out rivals as the 2026 Air remains the most efficient EV in the US

Lucid Motors (LCID) is calling out the competition after the 2026 Air remains the most efficient EV in the US according to new EPA rankings.

2026 Lucid Air remains most efficient EV in EPA rankings

It has been 9 years since Lucid introduced the +400-mile-range Air, its first luxury electric sedan. Since then, the California-based EV maker has come a long way, introducing its first electric SUV, the Gravity, and plans to launch a series of more affordable midsize vehicles, starting later next year.

Lucid’s former CEO, Peter Rawlinson, who was a top engineer at Tesla before joining the luxury EV startup in 2013, promised the company’s innovations would be “the key to unlocking greater efficiency,” and ultimately, more affordable vehicles.

Rawlinson was not kidding. The 2024 Lucid Air Pure was deemed the “world’s most efficient car” with a record 5 miles of range per kWh and a 146 MPGe rating, the highest rating ever given to an EV by the EPA.

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Even with a slate of new EVs hitting the market, many claiming next-level efficiency, the Lucid Air is still ahead of the pack.

Lucid-Air-most-efficient-EV-2026 — The 2026 Lucid Air (Source: Lucid)

According to new EPA rankings, the 2026 Lucid Air Pure RWD (with 19″ wheels) remains the most efficient EV in the US with a 146 MPGe rating.

The Air beat out the 2026 Tesla Model Y Standard RWD (138 MPGe), 2026 Tesla Model 3 Premium RWD (137 MPGe), 2026 Toyota bZ (131 MPGe), and the 2026 Mercedes-Benz CLA250 Plus EV (126 MPGe).

Other automakers often tout EV range using lenient WLTP or CLTC test cycles, masking efficiency gaps and inflating expectations. Now that official U.S. EPA numbers are out, the story changes. Lucid Air delivers S-Class size with unmatched efficiency, going farther on less energy… pic.twitter.com/yqYHMgF4tm

— Nick Twork (@ntwork) November 25, 2025

Lucid’s communications boss, Nick Twork, shared the news on social media, saying the Air “delivers “S-Class size with unmatched efficiency.”

While many automakers tout EV range using more lenient WLTP or CLTC test cycles, Twork said Lucid’s advantage “comes from a holistic engineering approach” that was designed years ago and “still ahead of any passenger car sold today.”

Electrek’s Take

By developing electric vehicle components from the ground up, including the powertrain, battery systems, and software, Lucid has an advantage over many legacy automakers that rely on third parties to outsource.

For one, Lucid’s innovations are already driving down costs. The first Lucid Air Dream Edition, launched in 2021, started at $169,000. Today, you can snag the Lucid Air for as low as $70,900.

Lucid is now ramping production of its first electric SUV, the Gravity. Last month, it launched the lower-priced Gravity Touring trim, starting at $79,900.

Starting later next year, Lucid will begin production of its midsize platform, which will spawn at least three “top hats” priced around $50,000. The first will be a midsize crossover SUV, followed by a more rugged SUV that will share design clues from the Gravity X concept. Although it’s yet to be confirmed, the third is expected to be a midsize sedan that could go head-to-head with the Tesla Model 3.

Rawlinson previously said Lucid’s midsize vehicles are aimed “right in the heart of Tesla Model 3, Model Y territory.”

After reporting Q3 earnings last month, Lucid said it had enough liquidity to fund it through the first half of 2027 and confirmed it’s on track to begin production of the midsize platform in late 2026.

Ready to test Lucid’s luxury EVs for yourself? Lucid is running a Cyber Monday Special, offering $2,000 toward an Air or $3,000 toward a Gravity. Check out the links below to find Lucid Air and Gravity models in your area.