No rate cuts after ‘lack of further progress’ on inflation

With inflation rising modestly and the labor market remaining strong, the Fed has decided to keep interest rates at their highest levels in 23 years, likely pushing the possibility of rate cuts into the year.

Interest rates will remain in the range of 5.25% to 5.5% since last July, the Federal Open Market Committee (FOMC) said in a statement. The Fed signaled in December that it could start cutting rates before the end of the year, but most traders say they expect the first rate cut to occur in November. CME FedWatch Tools.

The FOMC, the committee of Federal Reserve officials responsible for determining monetary policy, raised interest rates from 0% in March 2022 to their current levels in an effort to curb pandemic-induced inflation. The Fed then extended its runway for lowering interest rates as inflation remained stubbornly strong.

Measures of inflation have been rising since the beginning of the year. According to the latest Consumer Price Index (CPI), prices rose 3.5% in March from a year earlier, falling far from the Federal Reserve’s 2% target.

“There has been no further progress toward the committee’s 2% inflation target in recent months,” the FOMC said.

The Federal Reserve has the dual mandate of keeping inflation low and maximizing employment, but the FOMC expects the economy to enter a rare “soft landing” (slowing enough to reduce inflation without causing a recession). I’m not convinced yet.

Although many economists predicted a recession early last year, the U.S. economy has proven surprisingly resilient. The economy added 303,000 jobs last month, more than market expectations, and the unemployment rate fell below 4% for the longest period since the late 1960s.

However, gross domestic product (GDP) growth in the first quarter of this year was lower than expected, slowing to 1.6% from an annualized 4.9% in the blockbuster third quarter of 2023.

High borrowing costs are also weighing on Americans.

The cost of buying a home has reached an all-time high, due in part to high mortgage rates and a lack of housing supply.

According to the New York Fed’s latest research, total household debt will reach $17.5 trillion in the fourth quarter of 2023, with credit card debt accounting for $1.13 trillion.Quarterly report on household debt and creditIt also showed that delinquency rates for all debt except student loans are increasing.

“The Fed’s high interest rates are exacerbating the housing crisis while doing nothing to address the persistently high prices. Meanwhile, soaring borrowing costs have pushed household debt to record highs and delinquencies are rising.” said Rakeen Mahboud, chief economist at the progressive Groundwork Collaborative and a former Treasury official.

“The Fed is failing struggling families and failing to rein in inflation. Chairman Powell should move to cut rates,” Maboud added.

The politically independent Fed is under pressure from both sides of the aisle as it considers when and whether to cut rates.

Dozens of Democratic progressives called on the central bank to lower interest rates, pointing out the burden of high interest rates on Americans. Former President Trump, who nominated Powell as the top Republican candidate for his first term, accused the lifelong Republican chairman of being “political” and suggested lowering interest rates to favor Democrats in the next election.

Biden, who nominated Powell for a second term when he took office, is battling negative perceptions about his handling of the economy and inflation.

a Recent CNN poll 65% of voters say the economy is very important to them in deciding who to vote for in the presidential election, up from 40% in 2020 and 46% in 2016. However, the poll found that Biden’s approval rating on the economy was just 34%. And only 29% of voters approve of his approach to tackling inflation.

A CNN poll found Biden leading Trump by 6 points, but an analysis of nearly 700 national polls by The Hill/Decision Desk showed the incumbent trailing his predecessor by 1 point. It was shown that they were separated by less than a point.