UWM expert: Inflation report means interest rate cuts unlikely to happen

 

MILWAUKEE (CBS 58) -- Wednesday's report showing the Consumer Price Index moving in the wrong direction means it's unlikely the Federal Reserve will cut interest rates anytime soon, according to a UW-Milwaukee economist.

Kundan Kishor, who chairs the economics department at UWM, said most people in his field were surprised to see inflation rate of 3.5% in March. In February, the inflation rate was 3.2%, and Kishor said there had been optimism inflation would continue to cool after spiking in 2022 with rates around 9%.

"The numbers that came out was higher than what the consensus forecast was," Kishor said. "And that has created problems for the Central Bank."

While Kishor said the inflation is still considerably lower than it was two years ago, Wednesday's report signaled it could be some time before inflation cools all the way to the Fed's target rate of 2%.

While some goods and services have seen particularly high inflation, such as car insurance at 22%, Kishor said the overall picture indicated that a tight labor market was keeping demand high for goods and services.

The needle the Fed is trying to thread is reducing demand by gradually raising interest rates. The idea is that would lower prices as demand for services falls off, and the Fed hopes to do it in a way that doesn't lead to layoffs that drive up unemployment.

The current Federal Reserve interest rate is between 5.25% and 5.5%.

Kishor said Wednesday's report shows just how hard it is to strike that balance, and he added the stubbornness of this inflation means we probably won't see the Fed lower interest rates in the coming months.

"After the numbers today, that showed up, that probability of decline has gone down considerably," Kishor said.