The announcement came after a Labor Department report showed inflation slowed more than expected in May, even as prices remain high for millions of Americans.
of Federal Reserve The Fed kept interest rates on hold for a seventh consecutive session on Wednesday and scaled back its outlook for rate cuts later this year amid persistently high inflation.
In new quarterly economic forecasts released after the meeting, the majority of Fed officials now expect interest rates to fall to just 5.1% by the end of 2024, suggesting just one quarter-point cut this year — a sharp reversal from the three cuts officials predicted in March.
In a statement after the meeting, policymakers left the door open to a rate cut but stressed they needed “further confidence” that inflation was falling before lowering borrowing costs.
Inflation has fallen significantly from its peak, but price pressures have proven more persistent than expected. The Fed’s favorite measure is Inflation is on the rise The increase was 2.7%, well above the central bank’s 2% target. Excluding food and energy, core inflation rose further to 2.8%.
Rents have stagnated, suggesting high inflation may continue
Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC on May 1, 2024. (Photo by Liu Jie/Xinhua via Getty Images)
Policy makers are expected to raise interest rates sharply in 2022 and 2023 to their highest levels in more than two decades, Slow down the economy And then there’s inflation. Officials are now struggling with when to ease off the brakes: They entered 2024 planning to cut rates at least three times this year, but have repeatedly postponed those plans even as inflation eased in April and May.
Inflation rose to 3.3% in May, below expectations
New forecasts released Wednesday showed many central banks are preparing for higher inflation this year. Officials now expect inflation to fall to 2.6% by the end of 2024, up from a 2.4% forecast in March, before slowing to 2.3% in 2025.
Still, Fed policymakers tweaked the language in their statement to say they had made “further moderate progress toward the Committee’s 2 percent inflation objective,” a change from last month, when they said they saw a “lack of further progress” in tackling high inflation. They now expect four rate cuts in 2025, up from their forecast of three cuts in March.
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When interest rates rise, they tend to push up interest rates on consumer and business loans, forcing employers to cut spending and slowing the economy. Rising rates have pushed the average interest rate on a 30-year mortgage above 8% last year for the first time in decades. The cost of all kinds of borrowing, including home equity loans, auto loans and credit cards, has also soared.
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But the interest rate surge hasn’t stopped consumers from spending or businesses from hiring. The labor market continues to move at a healthy pace. Employment increased by 272,000 More than 1 million people joined the workforce in May, and job openings remain above pre-pandemic levels, although the unemployment rate recently rose to 4%.
This is a developing story, please check back for updates.
