WASHINGTON \u2014 Hopes for interest rate cuts this year by the Federal Reserve are steadily fading, with a stream of recent remarks by Fed officials underscoring their intention to keep borrowing costs high as long as needed to curb persistently elevated inflation.<\/p>\n
A key reason for the delay in rate cuts is that the inflation pressures that are bedeviling the economy are being driven largely by lingering forces from the pandemic \u2014 for items ranging from apartment rents to\u00a0auto insurance\u00a0to hospital prices. Though Fed officials say they expect inflation in those areas to eventually cool, they\u2019ve signaled that they\u2019re prepared to wait as long as it takes.<\/p>\n
Yet the policymakers\u2019 willingness to keep their key rate at a two-decade peak \u2014 thereby keeping costs painfully high for mortgages, auto loans and other forms of consumer borrowing \u2014 carries its own risks.<\/p>\n
The Fed\u2019s mandate is to strike a balance between keeping rates high enough to control inflation yet not so high as to damage the job market. While most measures show that growth\u00a0and hiring\u00a0remain healthy, some gauges of the economy have begun to reveal signs of weakness. The longer the Fed keeps its benchmark rate elevated, the greater the risk of causing a downturn.<\/p>\n
At the same time,\u00a0with polls showing\u00a0that costlier rents, groceries and gasoline are angering voters as the presidential campaign intensifies, Donald Trump has sought to pin the blame for higher prices squarely on President Joe Biden.<\/p>\n
The Fed, led by Chair Jerome Powell, raised its benchmark rate by 5 percentage points from March 2022 through June 2023 \u2014 the fastest such increase in four decades \u2014 to try to drive inflation back down to its 2% target. According to the Fed\u2019s preferred measure, inflation has tumbled from 7.1% in June 2022\u00a0to 2.7% in March.<\/p>\n
That same gauge showed, though, that prices accelerated in the first three months of 2024, disrupting last year\u2019s steady slowdown. On Friday, economists expect the government to report that this measure rose 2.7% in April from a year earlier.<\/p>\n
A separate inflation indicator that the government reported this month suggested that\u00a0prices cooled slightly in April. But with inflation remaining stubbornly above the Fed\u2019s target level, Wall Street traders now expect just one rate cut this year, in November. And even that is hardly a slam-dunk, with investors placing the likelihood of a cut in November at 63%, down from 77% a week ago.<\/p>\n
Last week, economists at Goldman Sachs became the latest analysts to give up on a rate cut in July, pushing back their forecast for the first of two cuts they expect this year to September. Oxford Economics made a similar call last month. Bank of America foresees just one Fed rate cut this year, in December. Just months ago, many economists had forecast the first rate cut for March of this year.<\/p>\n
\u201cWe will need to accumulate further data over the coming months to have a clearer picture of the inflation outlook,\u201d Loretta Mester, president of Federal Reserve Bank of Cleveland, said this month. \u201cI now believe that it will take longer to reach our 2% goal than I previously thought.\u201d (Mester is among 12 officials who are voting on the Fed\u2019s rate policy this year.)<\/p>\n
As further data accumulates, so do some signs that the economy is cooling a bit. More Americans, particularly younger adults, are\u00a0falling behind\u00a0on their credit card bills, for example, with the share of card debt 90 days or more overdue reaching 10.7% in the first quarter, according to the Fed\u2019s New York branch. That\u2019s the highest proportion in 14 years.<\/p>\n
Hiring is also slowing, with businesses posting\u00a0fewer open jobs, though job advertisements remain high.<\/p>\n
And more companies,\u00a0including Target,\u00a0McDonalds\u00a0and Burger King, are highlighting price cuts or cheaper deals to try to attract financially squeezed consumers. Their actions could help lower inflation in the coming months. But they also underscore the struggles that lower-income Americans face.<\/p>\n
\u201cThere\u2019s a lot of signs that consumers are kind of losing some steam and hiring demand is cooling,\u201d said Julia Coronado, a former Fed economist who is president of MacroPolicy Perspectives. \u201cYou could see more of a slowdown.\u201d<\/p>\n
But Coronado and other economists also regard the latest trends as a sign that the economy may simply be normalizing after a period of rapid growth. Companies\u00a0are still hiring, though at a more modest pace than at the start of the year. And data suggests that Americans traveled in\u00a0record numbers\u00a0over the Memorial Day weekend, a sign they\u2019re confident in their finances.<\/p>\n
One reason why inflation remains above the Fed\u2019s target is that distortions stemming from the pandemic are still keeping prices elevated in several areas even as much of the rest of the economy has moved past the pandemic.<\/p>\n
Housing costs, led by apartment rents, jumped two years ago after many Americans sought additional living space during the pandemic. Rental costs are now slowing: They rose 5.4% in April on an annual basis, down from 8.8% a year earlier. But they\u2019re still rising faster than before the pandemic.<\/p>\n
Last month, rent and homeownership, along with hotel prices, accounted for two-thirds of the annual rise in \u201ccore\u201d inflation, which excludes volatile food and energy costs. Powell and other Fed officials have acknowledged that they had expected rents to fall more quickly than they have.<\/p>\n
The cost of a new lease, though, has tumbled since mid-2022. A gauge of newly leased apartment rents calculated by the government shows that they rose just 0.4% in the first three months of 2024 compared with a year earlier. Yet it takes time for newer, lower-priced rents to feed into the government\u2019s inflation measure.<\/p>\n
\u201cMarket rents adjust more quickly to economic conditions than what landlords charge their existing tenants,\u201d Philip Jefferson, the Fed\u2019s vice chair and a top lieutenant to Powell, said last week. \u201cThis lag suggests that the large increase in market rents during the pandemic is still being passed through to existing rents and may keep housing services inflation elevated for a while longer.\u201d<\/p>\n
The\u00a0cost of auto insurance\u00a0has soared nearly 23% from a year earlier, a huge jump that reflects the surge in prices of new and used cars during the pandemic. Insurance companies now must pay more to replace totaled cars and as a result are charging their customers more.<\/p>\n
\u201cThis is about stuff that happened in 2021,\u201d said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. \u201cYou cannot go back and change that.\u201d<\/p>\n<\/p>\n
WASHINGTON \u2014 Hopes for interest rate cuts this year by the Federal Reserve are steadily fading, with a stream of recent remarks by Fed officials underscoring their intention to keep borrowing costs high as long as needed to curb persistently elevated inflation. A key reason for the delay in rate cuts is that the inflation […]<\/p>\n","protected":false},"author":0,"featured_media":5096,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-5095","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/5095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=5095"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/5095\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/5096"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=5095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=5095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=5095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}