The Fed Is Playing a Waiting Game on Rate Cuts. The Rules Are Starting to Change.

The Federal Reserve is facing a dilemma as investors question whether it will delay interest rate cuts due to recent inflation readings. However, the Fed is more concerned about the risk of inadvertently causing a recession if it waits too long to cut rates. While officials won't prioritize recession risk in this week's meeting, it is likely to influence their decision-making throughout the year. The focus of the meeting will be on the Fed's interest rate and economic projections, with investors eager to know if officials still anticipate three rate cuts or just two. The central bank is also considering the possibility of waiting longer to cut rates if inflation takes longer to reach 2%. The article highlights a shift within the Fed, with officials less worried about inflation remaining above 3% and more concerned about the slow decline of services inflation and the rebound of goods prices. The debate within the central bank centers around whether to cut rates by midyear or wait for more evidence of a slowdown. Some officials are ready to cut rates as soon as the inflation data allows, while others believe there is no need to adjust policy given above-target inflation, strong demand, and low unemployment. Ultimately, the decision will depend on the problem officials believe is easier to fix, with a focus on risk management. The article concludes by emphasizing the importance of credible justification for rate cuts, especially if there is no obvious deterioration in the broader economy. [Extracted from the article]