The Federal Reserve kept interest rates unchanged following its meeting on Wednesday — a move that was widely anticipated because the central bank cautioned that it “doesn’t expect it’s going to be appropriate” to slash rates “until it has gained greater confidence that inflation is moving sustainably toward 2%.”
The central bankers signaled that they still anticipate three rate cuts this yr, with investors betting the primary 25 basis point cut will are available in June.
Two weeks ago, Fed Chair Jerome Powell suggested that the central bank was “not far” from gaining the boldness it needed that inflation was headed sustainably toward its 2% goal level, which might allow it to begin cutting its benchmark interest rate.
It was a tantalizing suggestion, because a cut within the Fed’s key rate has typically boosted the economy by reducing the price of lending, from mortgages to business loans.
It may additionally profit President Joe Biden’s re-election bid, which is facing widespread public unhappiness over price levels across the economy.
Since then, though, the most recent inflation measures have turned out to be hotter than expected: A government report showed that consumer prices jumped from January to February by way more than is consistent with the Fed’s goal.
A second report showed that wholesale inflation also got here in surprisingly high — a possible sign of inflation pressures within the pipeline that might cause consumer price increases to remain elevated in the approaching months.
A key query for Powell and the 18 other officials on the Fed’s interest-rate-setting committee is how — or whether — those figures have altered their timetable for cutting rates.
Powell will certainly be pressed on the subject at a news conference Wednesday after the Fed ends its latest two-day meeting.
The central bank’s policymakers may also issue their updated quarterly projections for how they foresee the economy and interest rates changing within the months and years ahead.
Their previous such projections in December showed that the officials expected to chop their benchmark rate thrice this yr, up from a previous forecast of two cuts.
Most economists think the most recent quarterly projections will again show that the policymakers expect to chop rates thrice in 2024, though there’s a possibly they may reduce the expected number to 2.
Economists generally envision the primary rate cut coming in June.
On Wednesday, the Fed is taken into account sure to maintain its short-term rate, now at a 23-year high of nearly 5.4%, unchanged for a fifth straight time.
And it could not yet be entirely clear to Fed officials whether or not they have kept rates high enough for long enough to totally tame inflation.
Consumer inflation, measured yr over yr, has tumbled from a peak of 9.1% in June 2022 to three.2%. Yet it’s remained stuck above 3%.
And in the primary two months of 2024, the prices of services corresponding to rents, hotels and hospital stayed high, suggesting that top borrowing rates aren’t sufficiently slowing inflation within the economy’s vast service sector.
While the Fed’s rate hikes typically make borrowing costlier for homes, cars, appliances and other costly goods, they’ve much less effect on services spending, which doesn’t often involve loans.
With the economy still healthy, there isn’t any compelling reason for the Fed to chop rates until it feels inflation is sustainably under control.
At the identical time, the central bank faces a competing concern: If it waits too long to chop rates, a protracted period of high borrowing costs could seriously weaken the economy and even tip it right into a recession.
Powell warned of such an end result when he testified to the Senate Banking Committee this month. He said the Fed was becoming more confident that inflation is continuous to slow, even when not in a straight line.
“Once we do get that confidence, and we’re not removed from it,” he said, “it’ll be appropriate to start” rate reductions “in order that we don’t drive the economy into recession.”
Despite widespread evidence of a sturdy economy, there are signs that it could weaken in the approaching months.
Americans slowed their spending at retailers in January and February, for example.
The unemployment rate has reached 3.9% — still a healthy level, but up from a half-century low last yr of three.4%.
And far of the hiring in recent months has occurred in government, health care and personal education, with many other industries barely adding any jobs.
Just like the Fed, other major central banks are keeping rates high to make sure they’ve a firm handle on consumer price spikes.
In Europe, pressure is constructing to lower borrowing costs as inflation drops and economic growth stalls.
The European Central Bank’s leader hinted this month that a possible rate cut wouldn’t come until June, while the Bank of England isn’t expected to open the door to any imminent cut when it meets Thursday.
With Post Wires