Inflation remains, but will the interest rate change?

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If you were hoping for a rate cut from the Fed today, don’t hold your breath.

Forecasters say the chances of a rate cut by the Federal Reserve are slim to none when the committee announces its interest rate decision at the conclusion of a two-day meeting.

That means the Fed’s benchmark interest rate is likely to remain in the 5.25% to 5.5% range, where it has been for nearly a year, at a 23-year high.

Analysts had previously expected several rate cuts in 2024, but troublesome inflation has kept the Fed’s hand in check. Today, forecasters expect no interest rate cuts before the fall.

Here’s what to expect:

  • The Fed will make an interest rate announcement at 2 pm ET: there may be no change in the benchmark rate.
  • Federal Reserve Chairman Jerome Powell will hold a press conference at 2:30 p.m
  • In the absence of a rate cut, the market will analyze Powell’s words for any clue as to when the Fed might act.

The Fed is expected to announce its interest rate decision at 2 p.m. ET on Wednesday. Fed Chairman Jerome Powell will hold a press conference at 2:30.

Powell is likely to talk about the decision and shed light on how the central bank views the overall economy. The market will look for clues in Powell’s comments to predict what interest rate actions the Fed may take during the rest of the year.

The latest estimate for Social Security’s cost-of-living adjustment for 2025 fell to 3% after the government reported 3.3% inflation in May, new calculations showed Wednesday.

The 2025 COLA adjustment has been eased along with inflation, after a slight rise earlier this year. The increase probably understates what seniors will need to keep up with inflation, said Mary Johnson, a retired analyst with the nonprofit Senior Citizens Association that tracks and calculates COLA estimates.

The Consumer Price Index (CPI), a broad measure of the costs of goods and services, rose 3.3% in May from a year earlier. This is down from 3.4% in April.

Social Security’s cost-of-living adjustment is based on the “Consumer Price Index for Urban Wage and Clerical Workers” or CPI-W. That number fell to 3.3% from 3.4% in April, but still exceeds the 3.2% that Social Security COLA recipients began receiving in January.

Medora Lee

A lot has happened in the past three years. But there are not many cuts in interest rates.

For months, market forecasters have wondered when the Federal Reserve would step in to lower interest rates. But the Fed didn’t budge. The benchmark rate stands at a target range of 5.25% to 5.5%, where it has been since July: nearly a year.

The bite of inflation: Will you become a smarter shopper?

The last time the Fed actually cut interest rates was in March 2020, at the height of the pandemic. In an emergency meeting on March 14-15, the Fed moved to lower its target interest rate by a full percentage point, from a range of 1% to 1.25% to a range of 0-0.25%: effectively, zero.

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The next time the Fed made its decision on interest rates was two years later, at a meeting on March 15-16, 2022. Concerned about rising inflation, the committee ordered a quarter-point increase, to a target range of 0.25 percentage points. % to 0.50%.

It was all uphill from there. In a series of meetings between March and July 2023, the Fed raised interest rates a full five points, placing them at their current level.

Daniel de Visé

Economy: At 3.3%, inflation remains too high for the Fed. What the economic data says too

Although the Federal Reserve’s recent campaign to raise interest rates does not directly affect mortgage rates, the increases have rippled through the economy and made the calculations more difficult for homebuyers.

As of Tuesday, the average annual percentage rate (APR) for a 30-year fixed mortgage was 7.50%. This rate was about the same as a month ago, but much higher than the mortgage rates we saw between 2010 and early 2022.

Late last year, mortgage rates peaked at 7.79%. At that rate, the new buyers were paying $2,877 in principle and interest on a $400,000 mortgage, according to Bankrate mortgage calculator. That’s more than $1,000 higher than the payments on a similar mortgage before the Fed started fighting inflation.

Mortgage rates have been rising since the beginning of the year and are well above the 10-year average.

Not surprisingly, as mortgage rates rose, existing home sales declined. At the same time, average home prices are rising, due to a decrease in the number of homes on the market. According to economists, homeowners with mortgage rates of 3% or less are understandably reluctant to give up.

Jim Sergeant and Daniel DeVacy

The US unemployment rate rose to 4% in May. The monthly figure, which represents the proportion of people who are unemployed and looking for work, rose from 3.9% in April.

The unemployment rate is slowly rising, which may indicate that employers are pulling back on hiring. However, the rate is still below the 10-year average monthly rate of 4.3%. The job market was doing the same in 2020 before the pandemic put millions out of work.

The US economy produced $22.7 trillion worth of goods on an inflation-adjusted annual basis in the first quarter of 2024. This activity pushed GDP up 1.3% – recently revised down from 1.6% – compared to the fourth quarter of 2024. Year 2023.

In other words, the US economy is still growing, but not at a very fast pace. Some have speculated that the Fed’s campaign to raise interest rates may be starting to impact businesses and consumers. Another factor is the significant rise in imports, which reflects Americans’ purchases from producers abroad.

Jim Sergeant

The annual inflation rate appears to be stuck in the range of 3% to 3.5%, which is the area it has occupied since the beginning of the year. Although this number is not particularly high, it is higher than the 2% rate that the Federal Reserve has set as a target.

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Why does inflation remain high?

One “uncontrollable” component of inflation is rent, which remains high and accounts for about a third of the basket of goods and services used to calculate the Consumer Price Index, said Stephen Bittle, founder and chairman of Terranova, an alternative investment firm. A company specializing in commercial real estate.

Last month, in a Conference in AmsterdamFederal Reserve Chairman Jerome Powell called housing inflation “a bit of a puzzle.” New apartment rent metrics show that rents are barely increasing.

Friday’s surprisingly strong jobs report, coupled with a 4.1% year-over-year rise in wages, “should lead to a rebound in consumer spending,” said Kathy Bostjancic, chief economist at Nationwide. This trend also “could help keep inflation more buoyant,” she said, further delaying the timeline for any interest rate cuts by the Fed.

Medora Lee

Analysts and forecasters said Wednesday’s inflation report should be welcome news for the Federal Reserve.

Inflation was essentially flat in May, defying fears of an overheating economy.

“As we hear from the Fed later today, today’s inflation data should be another feather in the arm for Chairman Powell and increase the confidence of the rest of the voting members,” said Charlie Ripley, chief investment strategist at Allianz Investment Management. “More importantly, as we look further down the calendar, the distance from here to the first rate cut of the cycle appears to be closing quickly.”

But analysts warned that the new inflation report is not final.

“Overall, today’s inflation numbers will be welcome for the Fed, although certainly not enough to push it to cut interest rates,” he said. Elizabeth Renterdata analyst at personal finance site NerdWallet.

“The Fed will be happy to see inflation slow in this report,” said Bill Adams, chief economist at Comerica Bank. “But they will wait for more clear progress toward the inflation target before they start cutting interest rates.”

Comerica’s forecast has the Fed holding interest rates steady today, and again at its next meeting in July, then cutting rates in September, with another cut possible in December: two in total.

-Daniel de Vizier

After today’s meeting, the Fed has four more opportunities to move on interest rates this year. The committee meets every month or two.

Here are the remaining Fed meetings planned for 2024, including this week’s session:

  • June 11-12
  • July 30-31
  • September 17-18
  • November 6-7
  • December 17-18

-Daniel de Vizier

Stocks rose at the opening bell on Wednesday, hitting a record high on news that inflation was not rising.

The Dow Jones, S&P 500 and Nasdaq rose in the minutes after the market opened, with the S&P and Nasdaq hitting all-time highs.

At 9:45 a.m., the Dow Jones was up about 0.75%, the S&P was up 1.1% and the Nasdaq was up 1.4%.

All because of an inflation report that was completely boring: exactly what the market wanted. Inflation was essentially flat, with the annual rate rising 3.3% in May, compared to 3.4% in April.

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Daniel de Visé

The Federal Reserve’s benchmark short-term interest rate has been at a 23-year high of 5.25% to 5.5% since July, as the Fed waits for inflation to cool.

Annual inflation fell to 3.3% in May from 3.4% in April, well below the peak of 9.1% in June 2022, but still above the Fed’s 2% target.

The chances are slim that interest rates will be cut this summer. However, futures markets are still betting on one cut this year, possibly in September, as inflation eases, according to the CME FedWatch tool, which measures market expectations of changes in the benchmark rate.

Last March, the average forecast called for three interest rate cuts this year. Fed officials have since acknowledged that inflation has been surprisingly slow to decline, and economists expect the committee to propose smaller interest rate cuts. But cut one, or two? It will be a close call.

Medora Lee

The May Consumer Price Index (CPI) will be released, coming just hours before the end of the Fed meeting, and new inflation data may impact expectations of interest rate cuts by the Fed.

The Bureau of Labor Statistics released the Consumer Price Index for May on Wednesday morning. During the month, inflation, as measured by the Consumer Price Index, was unchanged when adjusted seasonally. The annual inflation rate fell slightly to 3.3%.

Thus, although inflation is not rising sharply, the annual rate appears to be stuck above 3%. That’s more than a full percentage point above the level Fed officials want to see, and another sign that borrowing costs will remain high.

The inflation report “could influence the tone” of the Fed meeting, Matthew Luzetti, chief economist at Deutsche Bank, wrote in a note. “Fed Chair Jerome Powell’s comments on inflation will undoubtedly reflect the May CPI data released that morning.”

Medora Lee and James Serjeant

Almost no one expects the Fed to cut interest rates when officials wrap up their two-day meeting on Wednesday. But economists and investors will be looking for clues about when the central bank might cut its key interest rate, and how many times it might do so this year.

Entering the year, many economists predicted that interest rates would actually fall. They expect up to six or seven interest rate cuts this year.

But inflation remains, and at this point, most economists have lowered their expectations for a rate cut to two, one or nothing in 2024. Some experts, including Minneapolis Fed President Neel Kashkari, have even suggested raising Interest rates probably won’t happen in 2024. Everyone.

Interest rates are the main tool the Federal Reserve uses to combat inflation. Higher interest rates make borrowing more expensive, slowing spending and the economy, which generally dampens rising prices overall.

Medora Lee

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