Unexpectedly stubborn inflation in January has raised concerns among some experts that the Federal Reserve will have to keep interest rates higher for longer to fight it.

Traders remain nearly certain it’s a question of when—not if—the central bank will cut its benchmark interest rate this year, with markets pricing in a 99.5% chance of at least one rate cut by December, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

However, when Tom Barkin, CEO of the Richmond Fed and a member of the central bank’s policy committee, was asked Friday on CNBC whether a rate cut was coming in 2024, he sounded less than 99.5% certain.

“We'll see,” he said on the Squawk Box show. “I'm still hopeful inflation is going to come down and if inflation normalizes, then it makes the case for why you'd want to start normalizing rates.”

While there are still good reasons to believe that inflation is on a firm downward trajectory, doubts are starting to creep in. Rate cut expectations were rattled last month by a 澳洲幸运5官方开奖结果体彩网:pair of government reports showing inflation stayed higher in January than forecasters had predicted.

More persistent than expected inflation could cause the Fed to hold its benchmark interest rate at its current 23-year high, or even raise it again, in hopes of slowing the economy enough to bring it under control.

When Fed officials last forecast the path of their influential fed funds rate, they penciled in three quarter-point rate cuts by the end of the year, chopping the rate down to a range of 4.5-4.75% from its current range of 5.25-5.5%. Financial markets currently𒈔 exp꧑ect the same according to the FedWatch tool.

Expectations of Rate Cut Have Boosted Economy

Among those betting against the grain and arguing that the Fed will not cut rates at all this year is Torsten Slok, chief economist at financial firm Apollo. Slok argued that with the economy gr🃏owing🐼 faster than forecasts had predicted, and a long-predicted recession nowhere in sight, 𓂃inflation pressures are still elevated and the Fed has little reason to cut rates. 

Ironically, market expectations of Fed rate cuts have boosted the economy and made those cuts less likely, he argued.

“The market came into 2023 expecting a recession. The market went into 2024 expecting six Fed cuts. The reality is that the U.S. economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December,” he wrote Friday in a research note. “As a result, the Fed will not cut rates this year, and rates are going to stay higher for longer.”

One example of that tailwind: rate cut expectations have pushed down interest rates on mortgages from their peak in late October, leading to a 澳洲幸运5官方开奖结果体彩网:slight ဣresurgence in the housing market.

Was the January Inflation Uptick a Blip?

To be sure, many economists took the view that the accelerating price increases shown by the Personal Consumption Expenditures measure of inflation last week was just a blip, not the beginning of an inflation rebound.

“January’s jump in the core PCE deflator is noise, not signal; fundamental disinflationary forces are strong,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary.

Shepherdson pointed to 澳洲幸运5官方开🎶奖结果体彩网:several underlying factors driving inflation down, including the fact that rent increases have stabilized after surging during the pandemic, global supply chain problems that drove up cꦰosts for all kinds of stuff have been sorted out, and global food prices have leveled off. 

On the other side, Slok said rapid wage increases would put upward pressure on inflation, as would the fact that many business owners say they’re planning to raise prices in recent surveys.

“The bottom line is that the Fed will spend most of 2024 fighting inflation,” Slok wrote.