Has The Fed Won The Battle Against Inflation?

Has The Fed Won The Battle Against Inflation?:

Fed policymakers have penciled three interest rate hikes next year

Brendan SMIALOWSKI

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The US Federal Reserve’s decision to hold its key lending rate on Wednesday and pencil in three interest rate cuts next year has fueled optimism that its inflation battle is won.

Against the backdrop of falling inflation, low unemployment, and persistent economic growth, analysts are increasingly asking the question: Has the Fed won the battle against inflation?

As the US economy was rebounding from the Covid-19 pandemic, a supply-side crunch caused a rapid surge in inflation. In March 2022, amid a rise in energy prices following Russia’s invasion of Ukraine, the Fed began aggressively hiking interest rates in a bid to control rising prices.

Over the next 18 months, policymakers lifted the Fed’s key lending rate to a 22-year high, and successfully cooled consumer inflation from a 40-year high of 9.1 percent last year to just over 3.1 percent in November 2023.

Fed policymakers are increasingly confident that they are on track to achieve this rare monetary policy success known as a “soft landing.” The Fed now expects economic growth to rise to 2.6 percent this year, before slowing down in 2024.

However, the Fed’s favored inflation gauge remains stuck stubbornly above its long-run target of two percent, underscoring the challenges that still remain.

On Wednesday, the Fed voted to hold interest rates steady for a third straight meeting and predicted 0.75 percent points of interest rate cuts in the year ahead.