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Are U.S. interest rates high enough to beat inflation? The Fed will take its time to find out

Are U.S. interest rates high enough to beat inflation? The Fed will take its time to find out

By Christopher Rugaber, Associated Press

The sharp interest rate hikes of the past two years will likely take longer than previously expected to bring down inflation, several Federal Reserve officials have said in recent comments, suggesting there may be few, if any, rate cuts this year.

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Summary by Claudi.ai, lightly edited by me: 

Several Federal Reserve officials have recently suggested that interest rates may need to stay high for longer than previously expected to effectively combat inflation. They are concerned that the sharp rate hikes over the past two years are not having as significant an impact on curbing spending and cooling inflation as economic models would predict.

Data shows that despite the rate increases, Americans are not spending much more of their income on interest payments compared to a few years ago. This is partly due to many homeowners having refinanced their mortgages at very low rates during the past 15 years when the Fed kept rates near zero.

Fed Chair Jerome Powell has emphasized the need for more time to gain confidence that inflation is returning to the Fed’s 2% target.

Some economists believe that if higher rates persist, more people will eventually feel the impact as they take on new mortgages or loans. Companies will also face higher borrowing costs as their low-interest loans mature.

The article suggests that the Fed may keep rates higher for longer than initially anticipated to effectively slow down spending and reduce inflation to its target level.

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