On Wednesday, officials from the Federal Reserve They will likely make official what has been clear for many weeks: With inflation stuck at a level above their 2% target, they are lowering their prospects for interest rate cuts.
In a set of quarterly economic forecasts they will issue after their last meeting ends, policymakers are expected to project that they will cut their benchmark rate only once or twice before the end of the year, instead of the three times they expected. they had planned in March.
The Fed’s rate policies typically have a significant impact on the costs of mortgages, auto loans, credit card rates and other forms of consumer and business borrowing. Lowering its outlook for rate cuts would mean those borrowing costs would likely stay high for longer, a disappointment to potential homebuyers and others.
Still, the Fed’s quarterly projections for future interest rate cuts are by no means fixed in time. Policymakers frequently revise their plans for rate cuts – or hikes – depending on how measures of economic growth and inflation evolve over time.
But if borrowing costs remain high in the coming months, it could also have consequences for the presidential race. Although the unemployment rate is low (4%), hiring is strong and consumers continue to spend, voters have a generally negative view of the economy under President Joe Biden. In large part, that’s because prices remain much higher than before the pandemic. High debt rates impose an additional financial burden.
The Fed’s updated economic forecasts, due out Wednesday afternoon, will likely be influenced by the government’s May inflation data due out in the morning. The inflation report is expected to show that consumer prices excluding volatile food and energy costs (so-called core inflation) rose 0.3% from April to May. That would be the same as the previous month and higher than Fed officials would prefer to see.
Headline inflation, contained by falling gasoline prices, is believed to have risen just 0.1%. Measured against a year earlier, consumer prices are projected to have increased 3.4% in May, the same as in April. Inflation had fallen steadily in the second half of last year, raising hopes that the Fed could achieve a “soft landing,” in which it would beat inflation by raising rates without causing a recession. Such a result is difficult and rare.
[Con información de The Associated Press]
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