Will it be difficult for Fed to cut inflation?

Inflation played a prominent role in the US Presidential election, especially for citizens frustrated about rising prices. During his campaign, Trump promised to reduce inflation, despite warnings from experts that tariffs would make inflation worse.

However, prices did not decline after Trump took office. Consumers continued to struggle, particularly with the rising cost of eggs. Inflation increased overall at the beginning of the year, reducing the chances of the Federal Reserve cutting interest rates multiple times this year, especially given the strong labor market.

Efforts to Cut Interest Rates

Between September and December, the Federal Reserve slashed interest rates by a full percentage point before signaling in January that it would take a "wait-and-see" approach before further cuts. Fed Chair Jerome Powell said in his congressional testimony: "The economy is in very good shape, and we want to make further progress on inflation."

Stubborn Inflation

In January, annual inflation rose to 3%, dashing hopes for an interest rate cut in the first half of the year. Egg prices—driven higher by supply shortages caused by bird flu—jumped over 15% from December, marking the biggest increase since June 2015 and accounting for about two-thirds of the monthly rise in grocery prices.

Will Prices Drop Soon?

The average price of a dozen eggs is now $4.95. Carl Weinberg, Chief Economist at High Frequency Economics, believes it may take months before prices decline. However, if egg prices stabilize at their high levels, they won’t necessarily contribute to further inflation, as inflation measures the rate of price increases over time.

Can It Be Controlled?

Paul Donovan, Chief Economist at UBS, stated in a memo that egg prices are beyond control—even through a presidential executive order. Some economists argue that the spike in egg prices is due to an unusual event known as a "supply shock." The Federal Reserve typically exercises patience in such situations, as markets focus on larger shocks like tariffs.