Sorry, America, it's looking like higher interest rates are going to stick around longer

• The Federal Reserve is expected to once again hold interest rates steady on Wednesday.

• Some economists predict there won't be interest-rate cuts until the second half of the year.

• Fed chair Powell has said he needs more data before cutting rates.

It doesn't look like the Federal Reserve will cut interest rates any time soon.

On Wednesday, the Federal Open Market Committee will announce whether it will continue to hold interest rates steady or cut them — and it's looking like it will choose the former. The CME FedWatch Tool, which estimates the market's view on the likelihood of interest-rate adjustments, predicted as of Monday morning there's a 97.1% chance rates would remain unchanged.

It all comes down to the data. Julia Pollak, the chief economist at ZipRecruiter, told Business Insider that the March jobs report was "the Fed's holy grail: strong job market with non-inflationary growth."

In the report, released earlier this month, average hourly earnings rose by 4.1% year over year in March — a slower rate than in the last few years — the unemployment rate wasn't too high, and there was strong job growth with 303,000 jobs added. In addition to the growth seen in January and February, these monthly job gains suggest the labor market has been strong so far this year.

Even with this positive data, inflation crept up in March. Jerome Powell, the chair of the Federal Reserve, said he needs to see more consistent proof that the economy is moving in the right direction before cutting interest rates, stressing that it's best to hold off rather than cut too early and risk having to hike rates again.

Both the consumer price index and the personal consumption expenditures price index — key inflation indicators — increased in March, with the CPI rising 3.5% year over year after notching 3.2% in February.

"The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence," Powell said during a panel discussion in Washington in April.

A report from the Bureau of Economic Analysis on GDP, released Thursday, found that the US economy has continued to slow. Real GDP growth increased at an annualized rate of 1.6% in the first quarter of 2024 — cooler than the 2.5% forecast.

Since inflation is still above the Fed's 2% target, it looks like rate cuts might not come until the second half of 2024. The CME FedWatch Tool estimated there's an 88.4% chance that rates will remain steady after the Fed's next meeting in June, with just an 11.3% chance of a rate cut.

"Right now, given the strength of the labor market and progress on inflation so far, it's appropriate to allow restrictive policy further time to work," Powell said during the April panel discussion. His cautious remarks have some economists predicting that cuts will likely not come until July at the earliest.

"With Powell indicating the Fed should allow restrictive policy further time to work and a clear majority of policymakers favoring two or fewer rate cuts, we expect only two 25 bps rate cuts in 2024 in July and November," Gregory Daco, EY's chief economist, said in a recent commentary.

Still, some Democratic lawmakers have been urging Powell to consider cutting rates sooner to provide relief to Americans who are struggling with high prices and sky-high mortgage and credit-card rates. Ahead of the FOMC's March decision to hold rates steady, a group of 23 Democrats said Powell should "seriously consider the harmful economic consequences of maintaining excessively high interest rates for an unnecessarily long period of time."

"With inflation already having come into line with the Federal Reserve's target, today's excessively contractionary monetary policy needlessly worsens housing market imbalances and the unaffordability of home ownership, creates risks for banking stability, and could threaten the achievements of strong employment and wage growth and its attendant reductions in economic and racial inequalities," the letter from the group of Democrats said.

For now, Powell is proceeding cautiously — and it'll likely mean rate cuts will not come until the second half of this year.

"Despite evidence that economic growth is beginning to slow, the Federal Reserve isn't as close to cutting interest rates as they thought they might be at their last meeting in March," Greg McBride, the chief financial analyst for Bankrate, said in a statement. "Inflation has continued to run hot and there is no compelling need for the Fed to cut interest rates until they're comfortable with where inflation is headed."

Read the original article on Business Insider