Likely Will Have to Wait

The Federal Reserve has been quite busy this decade. We started this decade with an economy-halting pandemic in March of 2020. The Fed reacted quickly, pushing short-term rates to zero, as well as adding significant qualitative stimulus in the form of purchasing treasuries and mortgages, further pushing down long-term interest rates as well. Along with massive stimulus packages from Congress, the recession was extremely deep, but also very short-lived.

The recovery was fast and powerful, but somewhat uneven, as certain parts of the economy were hit harder than others. It was so quick that the Fed was caught stimulating an economy which was already heating up. In their defense, it was not clear when and how the pandemic would end as we still are getting COVID spikes years later. The whole idea of an economy shutting down and then opening back up created much uncertainty on several levels – including how to overcome supply and labor shortages created by this unique situation.

The result? Massive world-wide inflation. In 2022 and 2023, the Fed was busy raising short-term rates and ending their purchases of mortgages and treasuries. Both short-term interest rates and long-term rates skyrocketed as inflation did not react as expected. Interestingly, the economy continued to be strong despite the Fed’s efforts to slow things down. The Fed stopped raising short-term rates over six months ago. Will their next meeting in March be their first move downward? Inflation has come down significantly, but the economic news is still stronger than expected. This contradiction makes March a tough call and the vibes coming from the Fed lead us to believe we will likely have to wait until May.