Monetary policy is now tight enough to bring inflation back to target, but policymakers need more data on inflation before cutting interest rates.
Inflation is steadily approaching 2% per year
It is natural to cut interest rates when inflation decreases, but the timing of the cut will depend on developments in inflation and the economy. As inflation subsides over time and the economy and labor market stabilize, my expectation is that interest rates will follow suit.
Policymakers are expected to leave interest rates unchanged at their meeting this month, giving them more time to assess the economy after sharply increasing interest rates from near zero to above 5%. At the same time, bond traders are betting on an abrupt end to the tightening cycle, although expectations for a March rate cut have eased.
Inflation is steadily approaching 2% per year
It is natural to cut interest rates when inflation decreases, but the timing of the cut will depend on developments in inflation and the economy. As inflation subsides over time and the economy and labor market stabilize, my expectation is that interest rates will follow suit.
Policymakers are expected to leave interest rates unchanged at their meeting this month, giving them more time to assess the economy after sharply increasing interest rates from near zero to above 5%. At the same time, bond traders are betting on an abrupt end to the tightening cycle, although expectations for a March rate cut have eased.
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