Evelyn Reynolds

Policymakers are expected to leave borrowing costs unchanged, but investors are bracing for signals that rates will stay higher for longer.Federal Reserve officials will conclude their two-day policy meeting on Wednesday afternoon, and while central bankers are widely expected to leave interest rates unchanged, there is an unusual degree of uncertainty about what exactly they will signal about the future.On the one hand, officials could stick with their recent script: Their next policy move is likely to be an interest rate reduction, but incoming inflation and growth data will determine how soon reductions can begin and how extensive they will be.But some economists are wondering if the central bank could pivot away from that message, opening the door to the possibility that its next rate move will be an increase rather than a cut. Inflation has proved alarmingly stubborn in recent months and the economy has retained substantial momentum, which could prod officials to question whether their current 5.33 percent rate setting is high enough to weigh on consumer and business borrowing and slow the economy. Policymakers believe that they need to use interest rates to tap the brakes on demand and bring inflation fully under control.The Fed will release its policy decision in a statement at 2 p.m. Eastern. But investors are likely to focus most intently on a news conference scheduled for 2:30 p.m. with Jerome H. Powell, the Fed chair. Central bankers will not release quarterly economic projections at this gathering — the next set is scheduled for release after the Fed’s June 11-12 meeting.Here’s what to watch on Wednesday.The Key Question: How Hawkish?The key question going into this meeting is how much central bankers are likely to change their tone in response to stubborn inflation.After three full months of limited progress on lowering inflation, some economists see a small chance that the Fed could signal that it’s open to considering raising interest rates again — a message that Fed watchers would consider “hawkish.” But many think that the Fed will stick with its current message that rates are likely to simply remain set to the current relatively high rate for a longer period of time.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

White House officials have barnstormed Wisconsin to make the connection between big changes and their signature laws.Across Milwaukee, residents can see evidence of federal money from laws passed under the Biden administration, if they know where to look.It shows up in a growing array of solar panels near the airport. Ramshackle houses rehabilitated and sold to first-time buyers. The removal of lead paint and pipes. The demolition of a derelict mall. A crime lab and emergency management center. A clinic and food pantry for people with H.I.V. Funding to help dozens of nonprofits provide services like violence prevention efforts and after-school programs.But of the more than $1 billion for Milwaukee County in the American Rescue Plan Act, the Bipartisan Infrastructure Law and the Inflation Reduction Act — legislation that President Biden counts among his greatest accomplishments — much is harder to see, like funds to prevent drastic cuts to public safety during the pandemic. Some money has yet to be spent, like $3.5 million to rebuild the penguin exhibit at the local zoo and $5.1 million to repair the roof of Milwaukee Mitchell International Airport.That presents both an opportunity and a challenge to Mr. Biden’s re-election campaign as it seeks to show Americans how federal investments have improved their lives. Doing so is difficult because the laws delegated many spending decisions to state and local officials, obscuring the money’s source.“The link between the resources themselves and anything that happens on the ground that’s visible to people is very opaque,” said Robert Kraig, executive director of the progressive advocacy group Citizen Action of Wisconsin. “You need to find some way to communicate this idea that there’s concrete progress within people’s communities that improves quality of life — and that there’s more coming.”Vivent Health, a newly constructed facility in Milwaukee that offers services to people with H.I.V.Sara Stathas for The New York TimesSolar panels installed atop the Milwaukee Central Library, which includes a green roof.Sara Stathas for The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The Federal Reserve has been ensnared in a holding pattern that likely will be reflected when it closes its meeting Wednesday.
Markets are anticipating a near-zero chance that the Federal Open Market Committee, the central bank’s policy-setting arm, will announce any change to interest rates.
The only piece of news likely to come out of the meeting itself is an announcement that the Fed soon will reduce the level at which it is running down the bond holdings on its balance sheet.

Federal Reserve Chairman Jerome Powell prepares to testify before the Senate Banking, Housing and Urban Affairs Committee on March, 7 2024. 
Kent Nishimura | Getty Images News | Getty Images

Faced with stubborn inflation that has raised concerns about where policy is headed, the Federal Reserve has been ensnared in a holding pattern that likely will be reflected when it closes its meeting Wednesday.
Markets are anticipating a near-zero chance that the Federal Open Market Committee, the central bank’s policy-setting arm, will announce any change to interest rates. That will keep the Fed’s key overnight borrowing rate in a range targeted between 5.25%-5.5% for what could be months — or even longer.

Recent commentary from policymakers and on Wall Street indicates there’s not much else the committee can do at this point.
“Pretty much everybody on the FOMC is talking from the same script right now,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “With maybe one or two exceptions, policymakers pretty universally agree that the last few months of inflation data are too warm to justify action in the near term. But they’re still hopeful that they will be in a position to cut rates later.”
The only piece of news likely to come out of the meeting itself is an announcement that the Fed soon will reduce the level at which it is running down the bond holdings on its balance sheet before bringing an end to a process known as “quantitative tightening” altogether.
Outside of that, the focus will be on rates and the central bank’s unwillingness to budge for now.

Lack of confidence

Officials from Chair Jerome Powell on down through the regional Fed bank presidents have said they don’t expect to start cutting rates until they are more confident that inflation is headed in the right direction and back toward the 2% annual goal.

Powell surprised markets two weeks ago with tough talk on how committed he and his colleagues are to achieve that mandate.
“We’ve said at the FOMC that we’ll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy,” he said at a central bank conference. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
Markets actually have held up pretty well since Powell made those comments on April 16, though stocks sold off Tuesday ahead of the meeting. The Dow Jones Industrial Average had even gained 1% over that period with investors seemingly willing to live with the prospect of a higher-for-longer rate climate.

But there’s always the specter that an unknown could come up.
That likely won’t happen during the business portion of the FOMC meeting, as most observers think the committee statement will show little or no change from March. Yet Powell has been known to surprise markets in the past, and his comments at the press conference will be scrutinized for just how hawkish of a view committee members hold.
“I doubt we’re going to get something that really surprises market pricing,” LeBas said. Powell’s comments “were pretty clear that we have not yet reached the threshold for significant further evidence of cooling inflation,” he said.
There’s been plenty of data lately to back up that position.
The personal consumption expenditures price index released last week showed inflation running at a 2.7% annual rate when including all items, or 2.8% for the all-important core measure that excludes food and energy. Fed officials prefer the Commerce Department index as a better inflation measure and focus more on core as a better indicator of long-term trends.
Additional evidence came Tuesday when the Labor Department said its employment cost index rose 1.2% in the first quarter, a 0.3 percentage point gain from the previous period and ahead of the Wall Street outlook for 1%.
None of those numbers are consistent with the Fed’s goal and likely will push Powell to exercise caution about where policy goes from here, with an emphasis on the fading outlook for rate cuts anytime soon.

Down to one cut, hopes for more

Futures market pricing sees only about a 50% chance of a rate cut as early as September and is now anticipating just one quarter-percentage-point reduction by the end of 2024, according to the CME Group’s much-viewed FedWatch measure.
Some on Wall Street, though, are still hopeful that inflation data will show progress and allow the central bank to cut.
“While the recent upside inflation surprise has narrowed the path for the FOMC to cut this year, we expect upcoming inflation reports to be softer and still expect cuts in July and November, though even moderate upside surprises could delay cuts further,” Goldman Sachs economist David Mericle said in a note.
The Wall Street bank’s economists are preparing for the possibility that the Fed could be on hold for longer, particularly if inflation continues to surprise to the upside. In addition, they said the prospect of higher tariffs following the presidential election — favored by former President Donald Trump, the Republican nominee — could be inflationary.
On top of that, Goldman is part of a growing chorus on the Street that thinks the Fed’s March projection for the long-run “neutral” interest rate — neither stimulative nor restrictive — is too low at 2.6%.
However, the firm also doesn’t see rate hikes coming.
“We continue to think that rate hikes are quite unlikely because there are no signs of genuine reheating at the moment, and the funds rate is already quite elevated,” Mericle said. “It would probably take either a serious global supply shock or very inflationary policy shocks for rate hikes to become realistic again.”

Unwinding QT

One bit of news the Fed likely will make at the meeting would be an announcement regarding the balance sheet.
The central bank has been allowing up to $95 billion in maturing Treasurys and mortgage-backed securities to roll off each month, rather than reinvesting the proceeds. The operation has reduced the Fed’s total holdings by about $1.5 trillion.
Officials at their March 19-20 meeting discussed cutting the amount of runoff “by roughly half from the recent pace,” according to minutes from the session.
As it reduces the holdings, bank reserves parked at the Fed theoretically would decline as institutions put their money elsewhere. However, a dearth of Treasury bill issuance this year has caused the reserves level to rise by about $500 billion since the beginning of the year to $3.3 trillion as banks park their money with the Fed. If the reserves level doesn’t drop, it might push policymakers into carrying out QT for longer.

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Executives at some of America’s largest companies have said that consumers feel the pinch of higher prices.
Their remarks come as sticky inflation poses a challenge for Main Street, Wall Street and the Federal Reserve.

McDonald’s employee giving change to a customer.
Jeffrey Greenberg | UIG | Getty Images

Some of America’s best-known corporations are saying their consumers are being pinched by inflation as prices continue rising.
Inflation has dominated corporate America’s discourse over the past three years following the pandemic-induced easing of monetary policy and trillions of dollars in Covid relief. Though the pace of price growth has cooled since the Federal Reserve began raising interest rates in early 2022, consumers are still feeling the squeeze — and often tightening purse strings — as costs continue climbing.

“It is clear that broad-based consumer pressures persist around the world,” McDonald’s CEO Chris Kempczinski said on the fast-food chain’s earnings call early Tuesday. “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending.”
Sticky inflation has created a dark cloud over how everyday Americans perceive the health of the economy. Consumer confidence in April hit its lowest level since mid-2022 as high prices remained top of mind, according to data released Tuesday by the Conference Board.
Worker pay has continued rising, as evidenced by first-quarter employment cost statistics released Tuesday. But so, too, have the prices paid by the typical consumer, biting into the extra income from those higher wages.
To be sure, the rate of inflation has fallen significantly. The consumer price index — a broad basket of goods and services — rose at an annual rate of 3.5% in March compared with the same month a year ago.
That’s far below the 40-year high of 9.1% seen in mid-2022 but remains above the 2% goal set by the Fed, whose officials have pointed to stubborn inflation as the reason for keeping interest rates higher.

And that tenacious 3.5% annual growth is souring economic sentiment: Even after a period of runaway inflation, prices don’t actually fall. That’s a problem for McDonald’s and a host of other firms serving customers who are feeling sticker shock.

‘Under pressure’

At McDonald’s, that was evidenced by same-store sales growth coming in slightly below Wall Street expectations. Kempczinski said that the Chicago-based company must be “laser-focused” on affordability to bring in diners as prices push away low-income consumers.
Executives at 3M, the maker of Scotch tape and Post-it Notes that also reported Tuesday, told analysts it’s seeing “continued softness in consumer discretionary spend.” While 3M earnings and revenue topped expectations in the first quarter, management said it anticipates consumer spending this year to be “muted.”
Newell Brands CEO Chris Peterson on April 26 joined the chorus of executives pointing to inflation as the main force bedeviling their businesses. Though the owner of Coleman and Rubbermaid products exceeded analyst forecasts for the first three months of the year, the company issued soft guidance for current-quarter earnings and said revenue is likely to decline.
“The categories we compete in remain under pressure with consumers continuing to carefully manage their discretionary spend as the cumulative impact of inflation on food, energy and housing cost has outpaced wage growth,” Peterson said.
But not all consumer-facing companies are feeling the heat.
Colgate-Palmolive CEO Noel Wallace said on April 26 that volume growth has largely returned as “inflation became more benign and as pricing started to stabilize.”
At Coca-Cola, management has seen a greater emphasis on value, saying the purchasing power of lower-income consumers has taken a hit. Still, executives said on the soft drink maker’s earnings call Tuesday morning that the American consumer, across income strata, “remains in good shape.”
— CNBC’s Robert Hum and Amelia Lucas contributed to this report.

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The employment cost index, which tracks worker salaries and benefits, added 1.2% in the first quarter, the Labor Department reported Tuesday.
The increase added to concerns that a string of 11 Fed interest rate hikes has not done enough to ease price pressures.

Grace Cary | Moment | Getty Images

Employee compensation costs jumped more than expected to start the year, providing another danger sign about persistent inflation.
The employment cost index, which measures worker salaries and benefits, gained 1.2% in the first quarter, the Labor Department reported Tuesday. That was higher than 0.9% in the fourth quarter of 2023 and above the Dow Jones consensus estimate for a 1% increase.

In the larger picture, the increase added to concerns that a string of 11 Fed interest rate hikes has not done enough to ease price pressures and likely helps keep the central bank on hold before it can start easing monetary policy.
The Fed watches the ECI as a significant measure of underlying inflation pressures.
The rate-setting Federal Open Market Committee begins its two-day meeting Tuesday. Markets have priced in virtually no chance that the FOMC will change the target for its overnight borrowing rate from the current range of 5.25%-5.5%.
Following the ECI index release, traders changed their outlook on the first cut coming in September, moving the odds to about a coin-flip, according to the CME Group’s FedWatch measure of fed funds futures pricing. The implied probability of no cuts this year also rose to about 23%, after being near zero just a month ago.
On a year-over-year basis, compensation costs for civilian workers increased 4.2%, still above a level the Fed feels is consistent with its 2% inflation goal, though down from 4.8% a year ago. Wages and salaries rose 4.4% while benefits costs increased 3.7%.
State and local government workers saw their compensation costs rise 4.8%, down just narrowly from the same period in 2023. The bigger increase likely was attributable to the high level of that group belonging to unions, which saw compensation costs increase 5.3%, compared to just a 3.9% gain for nonunion workers. More

Headline euro zone inflation was 2.4%, steady on the previous month and in-line with analyst expectations.
The core rate was slightly above forecasts, cooling to 2.7% from 2.9%.
The euro zone economy meanwhile rebounded to 0.3% growth, as a revised figure showed the bloc entered a recession in the second half of last year.

People walking in the streets of Montmartre, Paris, France, on April 23, 2024. 
Nurphoto | Nurphoto | Getty Images

Price rises in the euro area held steady at 2.4% in April, while the economy returned to growth in the first quarter, according to flash figures published Tuesday.
Headline inflation of 2.4% was in line with the forecast of economists polled by Reuters. On a monthly basis, inflation was 0.6%.

It is the seventh straight month the headline rate has been below 3%, despite a slight rebound in the rate in December due to energy prices.
Core inflation, excluding energy, food, alcohol and tobacco, dipped to 2.7% from 2.9% in March. The impact of a lower year-on-year price of energy continued to moderate, coming in at -0.6% versus -1.8% in March.
Price increases in services, a key watcher for the European Central Bank, cooled to 3.7% from 4%.
Gross domestic product meanwhile rose by 0.3% over the first three months of the year, slightly better than consensus economist expectations. GDP for the fourth quarter of 2023 was revised from no growth to a 0.1% contraction, which means that the euro zone was in a technical recession in the second half of last year.
Market expectation is mounting for the ECB to start cutting interest rates at its next monetary policy meeting on June 6. Money market pricing currently indicates a nearly 70% probability of a June trim, according to LSEG data, with even higher bets on a cut in July or September.

A host of voting ECB members told CNBC earlier this month that they are anticipating an interest rate reduction in June, citing the need to prevent an excessive slowdown in the euro zone economy. They also flagged risks from oil prices and volatility in the Middle East.
The fact that services inflation fell for the first time in six months, serves as a “more important development that increases our confidence that the ECB will lower policy rates in June,” Gerardo Martinez, Europe economist at BNP Paribas, said in emailed comments.
However, Martinez noted the slightly lower-than-expected fall in core inflation and volatility in some areas of services that had increased the inflation rates in France and Italy.
“With the path from here likely to be bumpy and growth data showing that the eurozone economy is gathering momentum, we think the path beyond June remains more uncertain and we continue to expect a gradual and cautious (quarterly) pace of easing from the ECB,” Martinez said.
Jane Foley, head of FX strategy at Rabobank, told CNBC by email that growth figures were encouraging, and that firmer than expected core inflation “may suggest less urgent need for more accommodative monetary policy from the ECB.” This supported the euro on the back of the release, she said.
“While a June rate cut is considered by many market participants to be almost a done deal, there is still plenty room for debate about the pace of ECB policy moves later in the year,” Foley added. More

The Better Goods store brand will carry plant-based, gluten-free and higher-end food and could help the retailer attract more affluent shoppers.When prices for grocery staples surged in 2021 and 2022, some Americans who had not regularly shopped at Walmart increasingly turned to the retailer, which is known for its affordable prices. Now, the company is trying to keep those new customers and attract others with a new selection of plant-based, gluten-free and deluxe culinary fare.On Tuesday, the retailer unveiled a new store brand that it said would make “quality food accessible.” Executives described the brand, Better Goods, as its largest foray into the private-label food business in 20 years.Better Goods items will include oat-milk frozen desserts, plant-based macaroni and cheese, and frozen appetizers like chicken curry empanadas and Brie Phyllo Blossoms. More than 70 percent of the products will cost less than $5, the retailer said.“All of our research tells us that the customer expects these types of goods,” said Scott Morris, a senior vice president of private food and consumables brands at Walmart. “They expect to have these elevated ingredients and offerings that we provide, and they are also looking for those healthier options.”The retailer says it is seeing growth in its store brands across all demographics, particularly shoppers from Generation Z, a group that includes people born in the late 1990s and early 2000s.Analysts are eager to find out if, as inflation eases, the retailer can retain higher-income individuals who started shopping at Walmart in the last few years. The company is taking a number of steps to make itself more attractive to customers. Walmart has said it plans to open new stores and to remodel existing ones. It has also changed signs, displays and other visual merchandising in ways that analysts say should make stores more appealing to affluent shoppers.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

High rates usually pull down asset prices and hurt the housing market. Those channels are muted now, possibly making policy slower to work.More than two years after the Federal Reserve started lifting interest rates to restrain growth and weigh on inflation, businesses continue to hire, consumers continue to spend and policymakers are questioning why their increases haven’t had a more aggressive bite.The answer probably lies in part in a simple reality: High interest rates are not really pinching Americans who own assets like houses and stocks as much as many economists might have expected.Some people are feeling the squeeze of Fed policy. Credit card rates have skyrocketed, and rising delinquencies on auto loans suggest that people with lower incomes are struggling under their weight.But for many people in middle and upper income groups — especially those who own their homes outright or who locked in cheap mortgages when rates were at rock bottom — this is a fairly sunny economic moment. Their house values are mostly holding up in spite of higher rates, stock indexes are hovering near record highs, and they can make meaningful interest on their savings for the first time in decades.Because many Americans feel good about their personal finances, they have also continued opening their wallets for vacations, concert tickets, holiday gifts, and other goods and services. Consumption has remained surprisingly strong, even two years into the Fed’s campaign to cool down the economy. And that means the Fed’s interest rate moves, which always take time to play out, seem to be even slower to work this time around.“Household finances broadly still look pretty good, though there is a group feeling the pain of high interest rates,” said Karen Dynan, an economist at Harvard and a former chief economist at the Treasury Department. “There are a lot of households in the middle and upper part of the distribution that still have a lot of wherewithal to spend.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More