The Federal Reserve kept interest rates on hold at a 23-year high on Wednesday as the battle to curb inflation drags on further into 2024.
The announcement came following a two-day meeting of the central bank’s monetary policy committee which raised borrowing rates to a range of 5.25%-5.5% from near zero in March 2022 amid a surge in pandemic-induced inflation.
While inflation has fallen significantly from a peak of 9% two years ago, the Fed has expressed concern that the economy is still too hot, the labor market is still strong and prices are still rising too quickly to start cutting rates.
Wednesday’s Consumer Price Index (CPI) showed prices were unchanged in May but still up 3.3% from a year earlier.
The annual rate is well above the central bank’s target of maintaining inflation at 2% annually, but is proving harder to achieve than expected in December, when the central bank hinted at several rate cuts this year.
“This is welcome news, but it’s not yet a victory for the Fed,” Diane Swonk, chief economist at KPMG, said of the latest inflation figures.
“We still expect a December cut, but a September cut is also possible,” Swonk said. “The challenge will be for the Fed to communicate a change in momentum on a quarterly basis, with year-over-year inflation measures looking solid.”
Following the latest CPI report, the majority of interest rate traders are expecting a rate cut in September. CME FedWatch ToolsMost traders don’t expect more than two rate cuts this year.
The September meeting will be the last opportunity the Federal Open Market Committee can cut interest rates before the 2024 election, when inflation and the economy will be key issues for many Americans struggling with high borrowing costs.
According to the New York Fed, total household debt rose by $184 billion to $17.7 trillion in the first quarter of this year, and delinquency rates are also rising. Latest quote.
“About one-third of balances associated with borrowers who have reached their limits have become delinquent over the past year, a significant decrease compared with less than one-quarter of balances in the year prior to the pandemic,” the bank’s researchers said. I wrote a blog post.
The Fed, a politically independent institution, is carefully trying to avoid the looming election.
Fed Chairman Jerome Powell, who is often seen wearing a purple tie while speaking to reporters at press conferences, was appointed chairman by former President Trump in 2017.
Trump has taken umbrage with Powell because he has refused to align the central bank’s monetary policy with the former president’s political goals. In February, he accused Powell of being “political” and suggested he would consider cutting interest rates to boost Democrats in the 2024 elections.
President Biden reappointed Powell to be chairman in 2021, over the objections of progressives who have been pushing the Fed to cut interest rates.
“Rent is now a major driver of inflation and high interest rates are exacerbating the home affordability crisis. Chairman Powell and the Fed need to lower interest rates,” said Sen. Elizabeth Warren (D-Mass.). Written on social platform X.
