The Fed is determined not to reduce interest rates too soon, experts say — a mistake the central bank has made in the past

The Federal Reserve, the United States’ central bank, is determined to keep interest rates elevated despite high inflation.

This is because they are concerned that lowering rates too soon could trigger uncontrolled inflation, like what happened in the late 1960s and 1970s.

The Fed believes that the risks of allowing inflation to continue outweigh the risks of causing a recession.

They fear that easing monetary policy prematurely, as they did in the past, could lead to entrenched inflation, as witnessed in the 1970s.

The resilience of the economy, evidenced by a solid jobs market and below 4% unemployment, coupled with consistently high inflation, suggests that the Fed will maintain a cautious stance.

Market expectations now indicate a lower likelihood of rate cuts in June than anticipated earlier.

Historical mistakes, such as allowing the banking system to fail in the early 1930s and easing interest rates too early in the late 1960s, continue to influence the Fed’s current cautious approach.

The central bank is determined not to repeat these missteps, even if it means holding rates higher for longer.

Fed Chair Jerome Powell has repeatedly emphasized the importance of maintaining policy restraint until there is a clearer and more sustained decline in inflation.

He is wary of a repeat of the 1980s scenario, when overly aggressive rate hikes triggered a severe recession.

In conclusion, the Fed is prioritizing fighting inflation over stimulating economic growth.

They believe that raising interest rates is necessary to curb rising prices, and they are determined to avoid the mistakes of the past that led to prolonged and damaging inflation.