Inflation was on a downward trend at the end of 2023, with headlines predicting multiple cuts in the Effective Federal Funds Rate by the Federal Reserve in 2024. However, an increase in consumer price and personal consumption expenditure indices led to no changes during their March 2024 meeting. According to John Beuerlein, chief economist at Pohlad Companies, expectations for interest rate cuts were revised due to a strong labor market and “higher for longer” will remain as Fed’s policy.
Beuerlein also noted that consumer spending slowed down while savings rates improved but remained below historic averages. The Senior Loan Officer Survey reported tightening lending standards but less than previous quarters. Banks anticipate strengthening loan demand across all categories but expect further tightening for credit card and auto loans.
The labor market showed mixed results with job gains according to establishment survey while household survey reported job decline leading unemployment rate reaching its highest level since January 2022. Fed Chair Jerome Powell stated that there is no rush to lower interest rates until they are confident about sustainable inflation towards their target of 2%.
Accordingly, Beuerlein believes that decisions regarding lowering interest rates will depend on both inflation and employment levels as per Fed’s mandate of price stability and maximum employment.
