Here’s what would happen to the US economy if there are no rate cuts this year

Federal Reserve officials have been saying for months they need to see more convincing data demonstrating that inflation is on a sustainable path to 2% before they can feel comfortable cutting rates. Last month’s unexpectedly hot Consumer Price Index report is the exact opposite of that. That’s why Fed Chair Powell conveyed on Tuesday the central bank won’t be cutting interest rates any time soon.

Federal Reserve officials have been saying for months they need to see more convincing data demonstrating that inflation is on a sustainable path to 2% before they can feel comfortable cutting rates. Last month’s unexpectedly hot Consumer Price Index report is the exact opposite of that. That’s why Fed Chair Powell conveyed on Tuesday the central bank won’t be cutting interest rates any time soon. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve [2% inflation],” Powell said Tuesday in a panel discussion with Bank of Canada Governor Tiff Macklem. US stocks initially dropped after his signal that rates would stay higher for longer, and Treasury yields rose to new highs for the year before paring back. Markets, businesses and the White House have been laser-focused on the timing and number of rate cuts this year, yet the prospect seems to be slipping away. How would the US economy handle more months of painstakingly high interest rates? Not as well as it has thus far, experts say. When Fed officials initially penciled in three rate cuts at the end of last year, markets hit new highs. The expectation at the time was the first of those cuts would come as early as March. Investors tend to prefer lower rates because that reduces the cost of borrowing which, in turn, can help boost profits. It also means investors have more money to pour into the market. Then, when progress on inflation started to stall leading into last month’s policy meeting, investors pushed back their timeline to June for the start of cuts. But investors were overjoyed when officials maintained their median forecast for three rate cuts this year at last month’s meeting, leading to multiple fresh records for major US indexes. However, that momentum is wearing off. After last week’s hotter-than-expected inflation data, the Dow, S&P 500 and Nasdaq Composite have each shed around 2% of their value.