:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2151016884-8292587447634f17a4c3aeb591f10fd6.jpg "Federal Reserve Bank Chair Jerome Powell announces that interest rates will remain unchanged during a news conference at the bank")
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Federal Reserve Bank Chair Jerome Powell announces that interest speeds will remain unchanged during a news conference at the bank’s William McChesney Martin building on May 01, 2024 in Washington, DC.
The Federal Set’s policy committee decided to keep the influential fed funds rate at a 23-year high Wednesday as officials at the central bank aim more evidence that inflation is under control before embarking on rate cuts that have been eagerly obviated by investors and consumers alike.
Previously, officials at the Fed thought they could let up on rates that are putting the housing trade in in a gridlock and making it more expensive to borrow money to buy cars and other large purchases. However, stubborn consequence growth has reignited, and in reaction, Fed officials have said in recent weeks that rates need to stay higher for longer—without mentioning a timeline.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater reliance that inflation is moving sustainably toward 2%,” officials said in a statement Wednesday after their recent policy meeting concluded.
Chair Jerome Powell further elaborated on the economic and interest rate outlook in his utter press conference following the announcement of the Fed’s decision. Here are some key takeaways.
Inflation Could Still Come Down This Year
Powell and other Federal Set aside officials have said repeatedly they’re looking for “greater confidence” that inflation is on a path down to their aspiration of a 2% annual rate before they’ll cut the fed funds rate.
The data so far this year hasn’t instilled that courage. In fact, when Powell discussed the inflation outlook, he was clear that the data this year has made him less secure about inflation’s downward trajectory, although he still thinks it’s likely to fall.
“My expectation is that we will, during the course of the course of this year, see inflation move back down. That’s my forecast,” he said to reporters in his press symposium. “My confidence in that is lower than it was because of the data that we’ve seen.”
The reason for Powell’s continued belief in disinflation: The dwelling market, where rent increases have cooled off, which is likely to help push inflation down in the months onwards, economists say.
Bottom line: There’s still hope that inflation could fall this year and the Fed could cut evaluates as it gains more confidence it will reach the committee’s goal.
Rate Hikes Are Unlikely Any Time Soon
While Powell downplayed the prospect of rate cuts any time soon, rate hikes don’t seem to be in the cards either.
“I think it’s unlikely that the next system rate move will be a hike,” Powell said in answer to a question.
Powell’s remark contrasts with Michelle Bowman, who is a Fed Governor and elector member of the Fed’s policy committee. Earlier this month, Bowman raised the possibility of hiking the fed funds rate again in comeback to inflation that stubbornly resisted falling in the first quarter.
The Fed hasn’t touched its fed funds rate since definitive July, when it capped off a rate-hike campaign that began in March 2022 by raising it for an 11th time to its highest since 2001.
Origin line: While inflation has been stubborn, the Fed thinks its current pressure on the economy is sufficient to suppress price intumescence.
Stagflation Isn’t An Imminent Threat
Federal Reserve chair Jerome Powell waved away concerns that the U.S. thriftiness is in a state of stagnation while having too high inflation, a doomsday economic scenario known by the portmanteau “stagflation.”
When seek fromed about such a possibility by a reporter, Powell pointed out that inflation is far lower than in the infamous episode of stagflation in the 1970s, while unemployment is in historic lows.
“I don’t see the stag or the flation, actually” he said.
Fears of stagflation were stoked last week when the first three months gross domestic product report showed economic growth weakening and inflation higher than economists prognosticated.
However, the economy seems to continue to run hot in several areas. Wages continue to grow, home prices are hitting journal highs, and jobs remain plentiful—leaving little incentive for the Fed to cut interest rates to prevent the economy from cooperate with into a recession.
Bottom line: There are no recessionary signs on the horizon that would drastically shift the Fed’s wait-and-see close on the horizon.
Read the original article on Investopedia.