LITTLE ROCK — The U.S. economy still hasn’t slowed to the Federal Reserve’s satisfaction, so don’t expect the Fed to cut interest rates at its June meeting, said Ryan Loy, extension economist for the University of Arkansas System Division of Agriculture.
In a news conference at the beginning of May, Fed Chairman Jerome Powell expressed frustration about the lack of downward progress toward the Fed’s objective of 2 percent inflation.
“We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell told reporters. “So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.”
Powell said in his May 1 news conference that “I don’t see the stag, or the ’flation,” he said.
The Fed instituted 11 interest rate hikes — seven in 2022 and four in 2023 — to quell the economic growth spurred by its COVID-era interest rate reductions.
Inflation, in terms of the Consumer Price Index, or CPI, has fallen from its post-COVID peak of 9.1 percent in June 2022 and further declined to 3.1 percent in November. However, inflation climbed to 3.5 percent in March 2024. This CPI inflation measure gives the percentage change from the previous year. For example, the CPI increased 9.1 percent between June 2021 and June 2022.
“At this point, we were supposed to be in a better spot,” Loy said, “But we're still in a strong economic climate. However, it’s an economic climate in which inflation rises with growth, which is essentially the definition of ‘stagflation’.”
What’s keeping the economy bubbling along? Consumers continue to make purchases, and the April employment report showed the addition of 175,000 jobs.
“People are still buying even with highly inflated prices,” Loy said. “I remember when people were freaking out when gas got to $3 a gallon. My dad wouldn’t drive anywhere. But now it’s $3.15 at the pump and nobody says anything.”
Loy said he didn’t know at what point inflation might slow consumer spending.