UNITED STATES NEWS

Fed keeps rates unchanged for first time in 15 months but signals 2 more potential hikes this year

Jun 14, 2023, 3:03 PM | Updated: 3:19 pm

 

WASHINGTON (AP) — The Federal Reserve kept its key interest rate unchanged Wednesday after having raised it 10 straight times to combat high inflation. But in a surprise move, the Fed signaled that it may raise rates twice more this year, beginning as soon as next month.

The Fed’s move to leave its benchmark rate at about 5.1%, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation. But top Fed officials want to take time to more fully assess how their rate hikes have affected inflation and the economy.

The central bank’s 18 policymakers envision raising their key rate by an additional half-point this year, to about 5.6%, according to economic forecasts they issued Wednesday.

The economic projections revealed a more hawkish Fed than many analysts had expected. Twelve of the 18 policymakers forecast at least two more quarter-point rate increases. Four supported a quarter-point increase. Only two envisioned keeping rates unchanged. The policymakers also predicted that their benchmark rate will stay higher for longer than they envisioned three months ago.

“We understand the hardship that high inflation is causing, and we remain strongly committed to bring inflation back down to our 2% goal,” Fed Chair Jerome Powell said at a news conference. “The process of getting inflation down is going to be a gradual one — it’s going to take some time.”

One reason why the officials may be predicting additional rate hikes is that they foresee a modestly healthier economy and more persistent inflation that might require higher rates to cool. Their updated forecasts show them predicting economic growth of 1% for 2023, an upgrade from their meager 0.4% forecast in March. And they expect “core” inflation, which excludes volatile food and energy prices, of 3.9% by year’s end, higher than they expected three months ago.

At his news conference, Powell made clear that the Fed still regards the still-robust job market and the wage growth that has accompanied it as contributing to high inflation. At the same time, he expressed optimism that lower apartment rental costs, among other items, may help slow inflation in the coming months. He stressed that the Fed wants to see an inflation slowdown actually materialize before holding off on further rate hikes.

“We want to see inflation coming down decisively,” he said.

Immediately after the Fed’s announcement, which followed its latest policy meeting, stocks sank and Treasury yields surged. The yield on the two-year Treasury note, which tends to track market expectations for future Fed actions, jumped from 4.62% to 4.77%.

The Fed’s aggressive streak of rate hikes, which have made mortgages, auto loans, credit cards and business borrowing costlier, have been intended to slow spending and defeat the worst bout of inflation in four decades. Mortgage rates have surged, and average credit card rates have surpassed 20% to a record high.

The central bank’s rate hikes have coincided with a steady drop in Core inflation was 5.3% in May compared with 12 months earlier, well above the Fed’s 2% target.

Powell and other top policymakers have also indicated that they want to assess how much a pullback in bank lending might be weakening the economy. Banks have been slowing their lending — and demand for loans has fallen — as interest rates have risen. Some analysts have expressed concern that the collapse of three large banks last spring could cause nervous lenders to sharply tighten their loan qualifications.

The Fed has raised its benchmark rate by a substantial 5 percentage points since March of last year — the fastest pace of increases in 40 years. “Skipping” a rate hike at this week’s meeting might have been the most effective way for Powell to unite a fractious policymaking committee.

The 18 members of the committee have appeared divided between those who favor one or two more rate hikes and those who would like to leave the Fed’s key rate where it is for at least a few months and see whether inflation further moderates. This group is concerned that hiking too aggressively would heighten the risk of causing a deep recession.

In an encouraging sign, inflation data that the government issued this week showed that most of the rise in core prices reflected high rents and used car prices. Those costs are expected to ease later this year.

Wholesale used car prices, for example, fell in May, raising the prospect that retail prices will follow suit. And rents are expected to ease in the coming months as new leases are signed with milder price increases. Those lower prices, though, will take time to feed into the government’s measure.

The economy has so far fared better than the central bank and most economists had expected at the beginning of the year. Companies are still hiring at a robust pace, which has helped encourage many people to keep spending, particularly on travel, dining out and entertainment.

 

United States News

Associated Press

Kansas governor and GOP leaders say they have a deal on tax cuts to end 2 years of stalemate

TOPEKA, Kan. (AP) — Kansas’ Democratic governor and top Republican lawmakers say they have an agreement on a package of broad tax cuts, potentially ending a two-year political standoff that has prevented their state from following others in making big reductions. The deal announced late Thursday by Gov. Laura Kelly and GOP leaders would save […]

21 minutes ago

Associated Press

A week of disorder in Cleveland, as City Hall remains closed after cyber threat

CLEVELAND (AP) — Cleveland’s City Hall remained closed to the public Friday, as officials in Ohio’s second-largest city continued to grapple with the effects of a cyber threat. City operations have been hampered all week by the threat, which was first detected Sunday. The nature of the threat, its cause and how extensively it affected […]

21 minutes ago

Associated Press

Move over grizzlies and wolves: Yellowstone visitors hope to catch a glimpse of rare white buffalo

YELLOWSTONE NATIONAL PARK, Wyo. (AP) — Standing at the edge of a bluff overlooking the Lamar River in Yellowstone National Park, TJ Ammond stared through binoculars at hundreds of buffalo dotting the verdant valley below. Tan-colored calves frolicked near their mothers while hulking bulls wallowed in mud. As his wife and young children clustered behind […]

41 minutes ago

Associated Press

Her dying husband worried she’d have money troubles. Then she won the lottery

FREEPORT, Pa. (AP) — In the weeks before his death, Karen Coffman’s husband worried she might have money troubles after he was gone. But two weeks before he died in April of complications from a brain tumor, the Pennsylvania woman bought a scratch-off state lottery ticket that netted her $1 million. “When I told him […]

1 hour ago

Associated Press

Judge says trial is required to decide government’s antitrust case over Google’s advertising tech

ALEXANDRIA, Va. (AP) — A federal judge on Friday said the government’s antitrust case against Google over its advertising technology will go to trial in September, rejecting both sides’ request to rule in their favor as a matter of law. The Justice Department and Google had been expected to make their arguments seeking summary judgment […]

2 hours ago

Associated Press

Vermont governor vetoes data privacy bill, saying state would be most hostile to businesses

Vermont’s governor has vetoed a broad data privacy bill that would have been one of the strongest in the country to crack down on companies’ use of online personal data by letting consumers file civil lawsuits against companies that break certain privacy rules. Republican Gov. Phil Scott said in his veto message late Thursday that […]

2 hours ago

Sponsored Articles

...

Midwestern University

Midwestern University Clinic visits boost student training & community health

Going to a Midwestern University Clinic can help make you feel good in more ways than one.

...

COLLINS COMFORT MASTERS

Here are 5 things Arizona residents need to know about their HVAC system

It's warming back up in the Valley, which means it's time to think about your air conditioning system's preparedness for summer.

...

Collins Comfort Masters

Here’s 1 way to ensure your family is drinking safe water

Water is maybe one of the most important resources in our lives, and especially if you have kids, you want them to have access to safe water.

Fed keeps rates unchanged for first time in 15 months but signals 2 more potential hikes this year