Most Americans including most of those on Wall Street believe that the Federal Reserve will cut interest rates soon. Wall Street believes rate cuts could come as early as next month. They also believe rates will be cut two or three times this year. Recent data, however, indicates otherwise.

As I have noted in a prior column last December, I do not believe rates will be cut in March. I further believe rates won’t be cut at all this year and may indeed be raised once or possibly twice.

Last November, the data indicated that the Fed would cut interest rates this year. The annual inflation rate which peaked at 9.1% in June 2022 had fallen to 3.1%. Economic growth, though, was very strong in the third quarter registering a 5% growth rate for GDP.

Most economists were forecasting growth would slow to the 1.5% to 2% range in the fourth quarter and slow further in the first quarter of 2024. They believed that the sluggish growth rate would allow the Fed to cut rates perhaps as early as next month.

Most economists further believed that the inflation rate, as measured by the Consumer Price Index, would continue to fall, dropping to nearly 3% by January or February. The combination of slow growth and falling inflation would allow the Fed to reduce interest rates.

As I noted back then, I disagreed with the consensus view of economists. Mostly because of massive federal government spendings deficits, huge wage increases workers were receiving and the potential for rising energy prices due to the conflicts in the Middle East, I believed inflation would increase.

Then the Consumer Price Index number for December was released. Annual inflation had increased from the 3.1% low seen in November to 3.4% in December. Fortunately, the Middle East conflicts did not increase oil prices at all. If energy prices had risen, the December CPI would have been higher.

In late January the first estimate for GDP growth in the fourth quarter was released. GDP grew at a 3.3% annualized rate. While that is down from 5% in the third quarter, it is a very healthy growth rate, indicating the economy was not slowing considerably.

If the economy was slowing, employers would have reduced the number of job openings, and they would reduce the number of new jobs added. Yet the number of job openings increased slightly from 8.8 million to 8.9 million.

In a slowing economy usually 150,000 or fewer new jobs are added each month. In January employment increased by 353,000. And the December jobs number was revised upward to 333,000.

The Atlanta Federal Reserve is forecasting that growth in the first quarter of this year will exceed 4%.

In December wage growth was .6% for the month. If this rate continues for the rest of 2024, which I believe is likely, wages will increase by more than 7% for the year. Higher wages both increase the cost of production and increase total demand.

Couple this with a Fiscal Policy that continues to have large annual budget deficits, it is easy to see why the Fed would be very concerned about excess demand leading to higher inflation.

In the last five fiscal years, from 2020 to 2024, the Federal Government has deficit spent about $11 trillion, which includes a forecasted $2.2 trillion deficit for this year.

If the war in the Middle East escalates energy prices will be driven higher, even with the worldwide slowdown in demand for energy. That will significantly increase the annual inflation rate, which could reach as high as 4.5%, or perhaps even 5%.

There is no way the Fed can cut interest if this scenario unfolds. In fact, to maintain price stability they will be forced to raise rates once or twice by year end.

I believe that the Fed halted their interest rate increases too soon. As I have been saying for more than two years, the Fed Funds Rate should reach at least 6% to wring inflation out of the economy. That means a couple of rate increases are possible this year.

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Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.