The Fed’s move to leave its benchmark rate at about 5.1%, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation.
The Federal Reserve, having raised interest rates at the fastest pace in four decades, is poised Wednesday to leave rates alone for the first time in 15 months to allow time to gauge the impact of its aggressive drive to tame inflation.
Housing costs continue to be a major driver of overall inflation. Rent rose 0.5 percent in May over the month before, only a minor improvement from a 0.6 percent increase in April. Rental costs are still up 8.7 percent over last year.
When the Federal Reserve meets next week, it is widely expected to leave interest rates alone—after 10 straight meetings in which it has jacked up its key rate to fight inflation. But that doesn’t mean its done with hikes.
The average prime rate, or the rate banks set as a reference for customer loans, was 4%. The prime rate has more than doubled since then, hitting 8.25% in May.
Leading Federal Reserve officials are sending out stronger signals that they will forego an increase at the central bank’s next meeting, though they indicate hikes could resume later this year.
The resilience of the American labor market continues to complicate the Federal Reserve’s efforts to fight inflation.
The stubbornness of high inflation is dividing the Federal Reserve over how to manage interest rates, leaving the outlook for the Fed’s policies cloudier than at any time since it unleashed a streak of 10 straight rate hikes.
The nation’s inflation rate has steadily cooled since peaking at 9.1% last June but remains far above the Federal Reserve’s 2% target rate.
A Federal Reserve report shows that banks raised their lending standards for business and consumer loans in the aftermath of three large bank failures. It’s a trend that could slow the economy in coming months.
The average price of a new vehicle in the United States has risen 30 percent over the past three years, according to Kelley Blue Book, pricing more Americans out of the new car market.
April’s hiring gain compares with 165,000 in March and 248,000 in February and is still at a level considered vigorous by historical standards.
The Federal Reserve said it will consider a range of factors in “determining the extent” to which future hikes might be needed.
Another quarter-point rate increase on Wednesday would leave the Fed’s key rate at 5.1%—a 16-year high and a full 5 percentage points higher than in March 2022.
Banks were initially slow to raise their payouts as the Fed raised rates because they were awash in deposits. But those deposits have shrunk over the past year because inflation forced consumers and businesses to dip into their savings.
Christopher Waller, a member of the Federal Reserve’s governing board, said there has been little progress on inflation for more than a year.
The Fed warned that the financial upheaval stemming from the collapse of two major banks is “likely to result in tighter credit conditions” and “weigh on economic activity, hiring and inflation.”
The Federal Reserve will have to decide whether to extend its year-long streak of rate hikes despite the jitters roiling the financial industry.
A significant driver of last month’s wholesale inflation slowdown was a huge drop in the prices of eggs, which plummeted 36.1% just in February. Egg prices had previously surged after a widespread outbreak of avian flu.
Even though prices are rising much faster than the Fed wants, some economists expect the central bank to suspend its year-long streak of interest rate hikes when it meets next week.
