US central bankers will meet again on Wednesday night and it will be exciting to see if Fed chief Jerome Powell and his colleagues give notice of when they will lower interest rates for the first time. The latest data has shown that the current phase of inflation is far from over.

Markets were already preparing for the Federal Reserve to change interest rates for the first time by summer at the latest. But inflation is too persistent for that.

“Prices have recently increased more than would be compatible with the 2 percent target”

“We see that comparisons with the same period last year are always strongly influenced by what happened at this time last year,” Jörg Krämer, chief economist at Commerzbank, tells FOCUS online. More recently, annual inflation in the US was 3.2 percent, and excluding food and energy it was even 3.8 percent.

However, if you look at shorter time periods, say more than three months, and extrapolate these rates to a year, then “we see that core inflation, excluding energy and food, has risen again in both the United States and in the euro area. ”says economist Krämer. “Prices have increased in recent months more than would be consistent with the 2 percent target.”

Things are unlikely to be as bad for consumers as they were in 2022 and 2023. But: “The point is that this recent, very sharp drop in inflation cannot simply be extrapolated into the future. Lately rates have fallen as sharply as they had previously risen.

This shows that the inflation problem is not over yet. “In the end, price inflation will not stabilize at the promised two percent, something will remain stagnant,” says Krämer, adding: “When it comes to inflation, there is always the image of a struggle. And now we see: this fight is not over yet. The last kilometer is the most difficult, as they say.”

Therefore, it is not surprising that the US Federal Reserve has not yet decided to start the interest rate cuts, so eagerly awaited, especially by stock market investors. “It will be interesting to see if the Federal Reserve gives any new signals on this tonight. The market has already ruled out two and a half interest rate cuts this year, because it has become clear that the battle against inflation is not yet won. “It may well be that the Federal Reserve will not reduce interest rates in June, but will wait.”

Meanwhile, ECB chief Christine Lagarde has already “consciously put the month of June into play” as the time for the first reduction. For euro interest rate supervisors not to take note of this timeline, inflation would probably have to rise sharply again.

In the meantime, rates may go down, but nothing more.

Currently this cannot be assumed. However, on a monthly basis, rates in the EU, eurozone and Germany recently rose more sharply than they have in months, an indication of how persistent inflation still is. Consumers should not underestimate this.

Of course, in the meantime the rate could “fall to 1.9 percent”, for example if the price of oil falls, says Krämer. “But I don't see the rate sustainably falling to two percent in the foreseeable future. It is not unusual for inflation to fall again after an energy price shock of this type, but not return to its original level,” warns the economist.

History also shows that central banks often celebrated the supposed end of inflation too soon. “There is a danger that interest rates will fall too quickly even if the problem has not been resolved.” Krämer reminds us of the structural factors of inflation: “I like to talk about the 'four big Ds': deglobalization, demographics, decarbonization and defense.”