Two recently released indicators were enough to dissipate the expectations, particularly on Wall Street, that the central bank would start lowering interest rates. Last Friday, just before this week’s central bank meeting in Washington, the Commerce Department revealed US economic growth slowed to 1.6 percent during this year’s first quarter, down from 3.4 percent in the last quarter of 2023.
By itself, this indicator of a slowdown at least does not reveal a recession and could justify a relaxation of the restrictive posture of holding interest rates above 5 percent, to control inflation. But the other indicator showed the personal consumption price index, preferred by the central bank, increased 3.4 percent during the last quarter, after less than 3 percent during the second half of last year.
This confirmed that inflation remains above the central bank’s 2 percent goal, while it also indicated an interruption of the declining trend prevalent during the second half of last year. Therefore, the conclusion is that interest rates will remain higher for longer. As quoted in The New York Times (04/26/24), central bank chairman Jerome Powell said, “The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence.”
