of the year everyone from stockpickers and homebuyers to President Joe Biden has banked on the Federal Reserve cutting interest rates soon. Over the past two weeks those hopes have been dashed. Annual consumer price inflation in March, at 3.5%, was higher than expected for the third month in a row; retail sales grew by a boomy 0.7% on the previous month. On April 16th Jerome Powell, the Fed’s chairman, warned that the battle against inflation was taking “longer than expected”.
America’s economy has demonstrated that it can withstand at least a temporary period of higher rates. On April 16th theforecast that it would grow by 2.7% in 2024, up from the 2.1% it expected in January. Yet its resilience to prolonged exposure to high rates is less certain. Financial markets will also feel the effects of continued high rates. The Fed’s doveishness in December propelled a stockmarket boom; though that recently lost steam, the500 index of stocks remains a fifth above its level at the end of October, when rates were last expected to stay higher for longer. Stocks now look vulnerable to a correction.
The consequences of higher rates in America will also ripple out to the rest of the world. Though there are signs of somewhat sticky inflation elsewhere—Britain’s consumer price inflation was also higher than expected in March—no major economy is as hot as America’s. The’s forecast for euro-zone growth this year, for example, is just 0.8%. The result is a strengthening dollar, which is up about 5% against its biggest trading partners this year.