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.
Jerome Powell’s more nuanced remarks Wednesday appeared to be an effort to quell any assumption that the Fed has already decided to raise rates more aggressively based on a recent string of data that pointed to strong economic growth and still-high inflation.
Jerome Powell’s comments reflect a sharp change in the economic outlook since the Fed’s most recent policy meeting in early February.
Most economists and Wall Street investors had expected the Fed to carry out another quarter-point increase when it next meets March 21-22. But in recent days, traders have been pricing in a greater likelihood of a half-point increase.
January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes.
Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain high and are likely to fuel price spikes well into this year.
