Federal Reserve officials left interest rates unchanged Meeting in June Wednesday and they predicted that Reduce borrowing costs Once before the end of 2024, take a cautious approach as they try to avoid prematurely declaring victory over inflation.
With the central bank expected to leave rates unchanged, its predictions for how interest rates might evolve surprised many economists.
When central bank officials released their quarterly economic estimates last March, they expected to cut interest rates three times this year. In light of stubborn inflation at the start of 2024, investors had expected some revisions to that outlook this time around, but the move to a single cut is more drastic.
Federal Reserve Chairman Jerome H. Powell made it clear at a post-meeting news conference that officials were taking a cautious and conservative approach after months of missing inflation data.
With price increases proving volatile and the job market resilient, policymakers believe they have the opportunity to keep interest rates steady enough to keep inflation fully under control without posing too much risk to the economy. But the central bank chief also suggested that further rate cuts are possible depending on economic data.
“Fortunately, we have a strong economy and we have the ability to approach this question carefully – and we will approach it carefully,” Mr. Powell said. “If economic risks emerge, we are very attentive to them,” he added.
Central bank officials raised interest rates at the fastest pace between early 2022 and last July to 5.3 percent, the highest in more than two decades. They kept them there in the hope that higher borrowing costs would dampen consumer and business demand enough to return inflation to a normal pace.
Initially, the plan went well: Inflation fell steadily in 2023, so central bank officials expected to cut interest rates significantly in 2024. But then price hikes proved surprisingly stubborn for a few months — and policymakers had to delay their plans for rate cuts, fearing they would cut borrowing costs too soon.
The danger in cutting early is that “we can undo a lot of the good we’ve done,” Mr. Powell explained Wednesday.
Now the inflationary picture is changing again. New consumer price index data on Wednesday suggested that inflation stickiness in early 2024 was a speed bump rather than a trend change: Price increases cooled significantly and broadly in May.
However, the central bank is late this year to pull off three rate cuts it had recently expected in March. And Mr. Powell made it clear he wanted to see more encouraging inflation reports before officials cut borrowing costs.
“Today’s readings are a step in the right direction,” he said. “But that’s just one reading. You don’t want to get too motivated by any one data point.
If the authorities make just one cut before the end of the year, it will take their policy rate to 5.1 percent. Policymakers have not given a clear indication of when a rate cut might occur. meet Four more times This year: July, September, November and December.
For American households, the Fed’s more cautious approach will keep mortgage rates, credit card rates and auto loan rates higher for a long time. But Mr. Powell emphasized that inflation is painful for families and that the Fed’s goal is to suppress rapid price increases.
For President Biden, a prolonged period of high interest rates could spell a less vigorous economy heading into the November election. The White House avoids talking about Fed policy because the central bank sets interest rates independently so officials can make challenging decisions without succumbing to short-term political pressure. But some Democrats in Congress are vocal in calling for rate cuts, and current presidents generally favor low interest rates.
Mr. Biden has come close to commenting on central bank policy at times, but has avoided putting direct pressure on the central bank.
On the other hand, whichever presidential candidate wins could benefit from a steeper path of rate cuts next year: Although Fed officials forecast fewer cuts in 2024, they suggested they could cut interest rates four times in 2025.
The central bank’s projections show that officials expect inflation to be stickier in 2024 than they previously expected: They forecast overall inflation to end the year at 2.6 percent, down from their previous estimate of 2.4 percent. Mr. Powell suggested.
He also clarified that the central bank’s projections are not a definitive plan. If inflation slows or the job market takes an unexpected turn toward weakness, the central bank can react by cutting interest rates.
“We don’t think it would be appropriate to ease policy until we are sure that inflation is coming down,” Mr. Or until there’s an “unexpected downturn” in the labor market, Powell said.
For now, the economy is resilient, and the Fed only has one meeting this summer in July. Few investors expect any movement.
D. “I think it’s going to push rates higher for a long time,” said Blerina Urucci, chief U.S. economist at Rowe Price.
