Nearly 11 months have passed since the Federal Reserve last raised interest rates.
The pause in rate hikes follows a 17-month period where the central bank raised interest rates by 5.25%. This represented the fastest and most aggressive rate-hiking campaign in decades; however, the focus is shifting to interest rate cuts as the central bank prepares to make its next policy move.
At the beginning of 2024, investors expected the Federal Reserve to start cutting interest rates in March, and many market forecasters were predicting up to six cuts this year. It’s now June, and nearly half of the year has passed without an interest rate cut.
To better understand what is preventing the Federal Reserve from cutting interest rates, it’s useful to review the Fed’s overall mandate. The central bank has two main objectives: (1) price stability and (2) full employment.
Price stability means low and stable inflation. Full employment means economic conditions that create new jobs and keep unemployment low.
One of the tools the Federal Reserve uses to achieve these goals is interest rate changes. Rate hikes are used to combat inflation, while rate cuts are used to stimulate the economy.
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