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Whispers in the financial corridors suggest the Federal Reserve might be close to declaring victory in its relentless battle against inflation. It’s like nearing the end of a marathon, legs are weary, but the finish line is in sight. The latest economic indicators hint at a phenomenon labeled “immaculate disinflation” – a scenario where inflation bows out gracefully without dragging the economy into a recession or jacking up unemployment.<a href="https://www.cnbc.com/2024/01/30/the-fed-will-cut-rates-fewer-times-and-start-them-later-than-market-hopes-according-to-cnbc-fed-survey.html" rel="nofollow noopener" target="_blank"> </a> 
With the U.S. economy flexing its muscles, growing at a robust annualized rate of 3.3% in the last quarter of 2023, one could argue that the Fed’s hawkish monetary policies are paying dividends. However, this growth translates to a less flashy 0.8% on a quarterly basis – a reality check for those who get dazzled by big numbers. 
<h2 class="wp-block-heading" id="parsing-the-inflation-data">Parsing the Inflation Data</h2> 
The Fed’s favorite inflation metric, the Personal Consumption Expenditures (PCE) deflator, is showing promising signs. The PCE, preferred over the Consumer Price Index (CPI), offers a broader and more consistent picture of household spending. For the number crunchers, the December figures are a sight for sore eyes. The core rate, which politely sidesteps food and energy prices, dipped below 3%. 
Diving deeper, the annualized PCE inflation rates across various time horizons paint an intriguing picture. The 12-month figures, the usual yardstick for inflation, are just part of the story. More recent periods, when annualized, show inflation cooling to 2% or lower. Granted, some underlying measures, like the Dallas Fed trimmed mean and the Cleveland Fed median inflation measure, are stubbornly higher. But, let’s call a spade a spade – inflation seems to be tamed, at least for the last six months. 
<h2 class="wp-block-heading" id="the-rate-cut-conundrum">The Rate Cut Conundrum</h2> 
The big question on everyone’s mind: what does this mean for interest rates? The recent inflation performance lines up nicely with the Fed’s projections. In December 2023, not a single soul at the FOMC expected lower inflation figures than what we’re seeing now. But before you break out the confetti, remember, December’s data doesn’t prophesize 2024. The Fed, like a cautious chess player, is likely to wait for more signs before signaling rate cuts. 
If you’re betting on rate cuts, the odds are not in favor of a March reduction. CNBC’s Fed Survey reveals a more conservative outlook compared to the market’s exuberant expectations. Only 9% foresee a rate cut in March, with the majority expecting a downward move around June. Survey respondents are less bullish than futures markets, predicting just over three rate cuts this year. 
Here’s where it gets interesting. The Fed’s decision is a balancing act. While there’s no pressing need to slam the brakes on the economy, they’re not in a hurry to ease off the pedal either. The reasons are fourfold: strong growth, uncertainty, fear of policy reversals, and the low cost of waiting. 
The <a href="https://www.cryptopolitan.com/us-economys-new-strength-challenges-fed/" data-type="post" data-id="454592">U.S. economy’s</a> performance outstripped even the most optimistic forecasts from December 2023. This robust growth, coupled with the fog of uncertainty clouding the global landscape, makes a strong case for the Fed to maintain its current stance. Add to that the central bankers’ disdain for policy U-turns and the minimal pain felt in the economy, and you’ve got a recipe for patience. 
Survey respondents see the Federal Reserve walking a tightrope. With a projected GDP slowdown to 1.3%, a slight uptick in unemployment to 4.3%, and CPI ending the year at 2.7%, the path ahead is fraught with both risks and opportunities. 
In the grand scheme of things, the question isn’t if the Fed will reach its desired funds rate between 3.3% and 3.6% by 2025; it’s about how fast and carefully they’ll get there. Like a cautious navigator, the Fed is expected to steer clear of market expectations while leaning into a few rate cuts.

Is Federal Reserve’s war on inflation really nearing its end?

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