The Fed Will Not Meet Its Inflation Target in 2024

According to the Bureau of Labor Statistics, the year-over-year inflation rate in April 2024 was 3.4%, which has caused some to be optimistic that the Federal Reserve (Fed) will lower interest rates later this year. I won’t guess what the Fed might do, but I’m pretty confident the Fed will not achieve its 2% inflation target in 2024.

If the Fed keeps rates high until the target is met, it will be a while before it lowers them.

The CPI increase so far in 2024 has been 2.2%, so if prices do not increase for the rest of the year, the Fed’s target will still not be achieved. Prices would have to fall for the rest of the year to meet the target.

Falling prices for a few months would not be unthinkable. Prices tend to rise more in the first half of the year than in the second half. (That is why data are often seasonally adjusted.) From April through December of 2023, the CPI increased by only 1.1%. Based on seasonal factors, we can expect the CPI to increase less in the year’s second half than it did in the first.

If prices increase by 1.1% for the rest of the year, the end-of-year inflation rate will be 3.3%, well above the Fed’s target and approximately what it is now.

The article linked above says “Fed Chair Jerome Powell made it clear Tuesday he thinks the Fed will need more than a quarter’s worth of data to really make a judgment on whether inflation is steadily falling towards 2%.” Looking at the numbers, it seems unlikely that we will see any meaningful decrease in inflation for the rest of the year.

If that is the case, and taking Powell’s statement at face value, interest rate cuts seem unlikely in 2024.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
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