Fed Chief Says Market May Not Get Rate Cuts in 2024

In a reversal of where things stood earlier this year, the head of the Federal Reserve delivered some bad news to investors this week: Cuts in the interest rate might not come at all in 2024.

On Tuesday, Jerome Powell, the chair of the Federal Reserve Bank, confirmed that the interest rate cuts that many had been expecting by the spring now might not come at all this year.

That’s due in large part to three recent reports that show inflation is still high, the conflict that’s escalating quickly in the Middle East, robust numbers for retails sales and increasing oil prices. These are all indications that the economy in the U.S. is still running very hot, and that inflation is still likely to be a major issue for a while.

As Powell said on Tuesday while attending a policy forum on Canada-United States economic relations:

“Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work.”

He said that if inflation continues to persist, the central bank will “maintain the current level of [interest rates] for as long as needed.”

His comments follow the most recent release of the consumer price index report, which showed that inflation year-over-year rose for the third month in a row in March, up to 3.5%. That’s significantly below its peak of 9.1% in June of 2022, but higher than the 3% mark for June of 2023 and well above the Fed’s target of 2%.

According to Powell, this data shows a clear “lack of progress” has been made in stopping inflation. As a result, it is likely to take longer than initially expected for officials at the Fed to be confident enough that they can cut the interest rates without setting off the economy too much.

According to LPL Financial’s chief global strategist, Quincy Krosby, the comments that Powell made “underscored that the downward trajectory of inflation has essentially stalled.”

As Krosby told Fortune:

“Moreover, he made it clear — rather than his more ambiguous stance regarding a rate easing timetable — that the ‘higher for longer’ narrative remains intact. This was unfriendly for equity markets, but markets got the message.”

Despite the fact that Powell’s stance is significantly changed from what it was even a few months ago, his comments this week didn’t come as a shock to many. That’s because he has changed his tone of messaging in recent weeks — as have other Fed officials — after multiple reports to start 2024 showed that inflation is still very hot.

In March, the Fed had projected that they would cut interest rates three times in 2024. Now, though, it seems as though Fed officials are taking a completely different stance on the matter.

Raphael Bostic, the president of the Atlanta Fed, for instance, said recently that he would expect only one cut to the interest rate in 2024, and that might not come until later in the year.