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    What to Watch as the Fed Meets on Wednesday

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    The Federal Reserve is expected to leave interest rates unchanged but could set up for a cut later this year.Federal Reserve officials are widely expected to leave their key interest rate unchanged on Wednesday, keeping it at the two-decade high of 5.3 percent for a 12th straight month in a bid to slow economic growth and crush inflation.But investors will be most focused on what comes next for borrowing costs. Economists and traders widely expect Fed officials to cut their policy rate at their next meeting, in September. Wall Street will closely watch for any hints about the future in both the Fed’s statement at 2 p.m. and a subsequent news conference with Jerome H. Powell, the chair of the central bank.While few economists expect an explicit signal on when a rate reduction is coming — the Fed has been trying to keep its options open — many think that central bankers will at least leave the door open to a cut at the next meeting, which will wrap up on Sept. 18. And Mr. Powell is sure to face questions about how officials are thinking about the potential for moves after that. Here’s what to look out for.Watch the Fed’s statement for changes.The Fed’s statement, a slowly changing document that officials release after each two-day meeting, currently states that Fed policymakers expect to hold rates steady until they have “gained greater confidence that inflation is moving sustainably” down.Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in his preview note that the statement could be headed for a small but meaningful tweak: Officials could adjust “greater confidence” to read “further confidence,” or some similar rewording. That would signal that policymakers were becoming more comfortable with the inflation backdrop.There would be a reason for that growing confidence. After proving surprisingly stubborn early in 2024, inflation is cooling again. The latest report showed that the Fed’s preferred index picked up just 2.5 percent over the year through June — still quicker than the central bank’s 2 percent target, but much slower than that measure’s recent peak in 2022, which was above 7 percent.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

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    Is the Labor Market About to Crack? It’s the Key Question for the Fed.

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    Central bankers are paying more attention to the strength of the job market as inflation cools. But it’s a tough time to gauge its resilience.David Gurley Jr.’s bank account benefited from a hot pandemic labor market. Mr. Gurley, a video game programmer, switched jobs twice in quick succession, boosting his salary and nabbing a fully remote position.By late last year, he was worried that a pullback in the tech industry could make his job precarious. But when it comes to the outlook now, “it seems like things are more or less OK,” Mr. Gurley, 35, said. Opportunities for rapid wage gains are not as widespread and some layoffs have happened, but he feels he could find a job if he needed one.Mr. Gurley’s experience — a rip-roaring labor market, then a wobbly one and now some semblance of normality — is the kind of postpandemic roller-coaster ride that many Americans have encountered. After breakneck hiring and wage growth in 2022 and 2023, conditions have moderated. Now economic officials are trying to figure out whether the labor market is settling into a new holding pattern or is poised to take a turn for the worse.The answer will be pivotal for the future of Federal Reserve policy.Central bankers spent 2022 and 2023 focused mainly on wrestling rapid inflation under control. They have left interest rates unchanged at 5.3 percent for more than a year now and are likely to keep them there at their meeting this week, making money expensive to borrow in a bid to restrain consumer demand and weigh down the overall economy.But now that inflation is returning to normal, officials are again concentrating keenly on their second major goal: maintaining a strong job market. They are trying to strike a careful balance in which they fully stamp out inflation without causing unemployment to spike in the process.The labor market still looks solid. Joblessness is low by historical standards, and claims for unemployment insurance have stabilized after moving up earlier this year. A fresh jobs report set for release Friday is expected to show that employers continued to hire in July, albeit at a slower pace.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

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    Fed’s Preferred Inflation Number Cooled Overall in June

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    The Personal Consumption Expenditures Index climbed 2.5 percent, still more than the Fed’s 2 percent target, as price increases take time to come down.The Federal Reserve’s preferred inflation measure continued to gradually cool overall in June even as a “core” inflation measure held steady, likely keeping the central bank on track for a rate cut later this year without stoking any urgency for a reduction at its meeting next week.The Personal Consumption Expenditures index was 2.5 percent higher in June than a year earlier, slower than May’s 2.6 percent and in line with economist expectations.A “core” price measure that strips out food and fuel costs for a better sense of the underlying inflation trend proved more stubborn. Yearly core inflation was 2.6 percent, matching its reading in May. And on a monthly basis, both measures of inflation climbed modestly.Overall, the report served as a reminder that inflation is substantially lower than it was at its 2022 peak, but is not yet entirely vanquished.This inflation measure peaked above 7 percent in 2022, so June’s reading is much cooler. But inflation has lingered above the Fed’s 2 percent goal for more than three years now. That long period of rapid increases has left price levels much higher than they were as recently as 2020, a reality that has caused dismay among consumers who continue to balk at heftier price tags. That in turn has been bad news for incumbent Democrats, who have struggled to take credit for a strong job market and a burst of infrastructure spending at a time when inflation is souring voters’ view of the economy.The long period of inflation has also made the Fed cautious. Policymakers have been holding interest rates at 5.3 percent for the past year, making it expensive to borrow money in a bid to weigh on consumer demand and cool the broader economy. Even though inflation is now coming down — suggesting that rates may no longer need to be so punishingly high — policymakers have not wanted to cut borrowing costs before they are sure that they have fully wrestled price increases under control.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

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    U.S. Economy Grew Faster Than Expected in Second Quarter, at 2.8% Rate

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    Gross domestic product rose at a 2.8 percent annual rate in the second quarter, new evidence of the economy’s resilience despite high interest rates.Economic growth picked up more than expected in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than the 1.4 percent rate recorded in the first quarter, but shy of the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Business investment in equipment rose at its fastest pace in more than two years. Inflation, which picked up unexpectedly at the start of the year, eased in the quarter.The data is preliminary and will be revised at least twice.Taken together, the findings suggest that the economy remains on track for a rare “soft landing,” in which inflation eases without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates two years ago to combat inflation.“It’s the perfect landing,” said Sam Coffin, an economist at Morgan Stanley.Recession fears re-emerged in recent months, first when inflation briefly surged and then when the previously rock-solid job market showed signs of cracking in the spring. But recent data, including the surprisingly strong second-quarter growth figures, indicate that the expansion is on firm footing.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.” More

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    U.S. Economy Grew at 2.8% Rate in Latest Quarter

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    The report on gross domestic product offered new evidence of the economy’s resilience in the face of high interest rates.Economic growth remained solid in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than both the 1.4 percent rate recorded in the first quarter and than forecasters’ expectations, but down from the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Inflation, which picked up unexpectedly at the start of the year, eased in the second quarter.The data is preliminary and will be revised at least twice.Taken together, the data suggested that the economy remains on track for a rare “soft landing,” in which inflation cools without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates to combat inflation two years ago.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.”Fed officials will meet next week to weigh when to begin lowering interest rates, which they have held at their current level, the highest in decades, for the past year. Hardly anyone expects policymakers to cut rates next week, but they could signal that such a move could come as soon as September if inflation continues to cool.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

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    Fed’s Powell Welcomes Cooler Inflation but Steers Clear of Rate Cut Timing

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    Jerome H. Powell, the chair of the Federal Reserve, avoided signaling when the Fed would cut rates at a time when some economists are wondering why officials would wait.Jerome H. Powell, the chair of the Federal Reserve, avoided sending a clear signal about when the central bank would begin to cut interest rates even as he welcomed a recent cool-down in inflation.“Today I’m not going to be sending any signals one way or the other on any particular meeting,” Mr. Powell said while speaking at the Economic Club of Washington on Monday. “Just to ruin the fun right at the beginning.”The Fed’s chair was speaking after several inflation reports in a row suggested that price increases were moderating in earnest, a development that had spurred some economists to think that it could make sense for officials to cut interest rates sooner rather than later. The Fed meets at the end of July and then again in September, and investors have been largely expecting that officials will begin to lower borrowing costs at the September meeting.Economists at Goldman Sachs wrote in a research note on Monday that cutting rates this month could be appropriate, given how much inflation had come down.“If the case for a cut is clear, why wait another seven weeks before delivering it?” Jan Hatzius, Goldman’s chief economist, wrote in the note, explaining that while his team still thinks that a rate cut in September is more likely, there is a “solid rationale” for an earlier move.But Mr. Powell did little to open the door to an earlier move during his Monday remarks. While he said recent inflation reports had added to central bankers’ confidence that price increases were coming down, he avoided giving a clear signal about when officials would have enough confidence to lower borrowing costs.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

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    U.S. Job Growth Extends Streak, but Signs of Concern Emerge

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    A gain of 206,000 in June exceeded forecasts. Hiring was concentrated in a few parts of the economy, however, and unemployment rose to 4.1 percent.Halfway through the year, and four years removed from the downturn set off by the coronavirus pandemic, the U.S. job engine is still cruising — even if it shows increased signs of downshifting.Employers delivered another solid month of hiring in June, the Labor Department reported on Friday, adding 206,000 jobs in the 42nd consecutive month of job growth.At the same time, the unemployment rate ticked up one-tenth of a point to 4.1 percent, up from 4 percent and surpassing 4 percent for the first time since November 2021.The gain in jobs was slightly greater than most analysts had forecast. But totals for the two previous months were revised downward, and the uptick in unemployment was unexpected. That has led many economists and investors to shift from having full faith in the jobs market to having some concern for it.“These numbers are good numbers,” said Claudia Sahm, the chief economist for New Century Advisors, cautioning against overly negative interpretations of the report.But “the importance of the unemployment rate is it can actually tell us a bit about where we might be going,” she added, noting that the rate had been drifting up since hitting a half-century low of 3.4 percent early last year.Wage growth slowed in JuneYear-over-year percentage change in earnings vs. inflation More

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    Investors Bet on Rate Cuts as Recent Data Suggests Slowdown

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    Investors are poised for a report on Friday to show a slowdown in the pace of hiring in June, building on weak services and manufacturing data, and to firm up their expectations of interest rate cuts starting as soon as September.Signs of lower rates in the near future, which would make it cheaper for consumers and companies to borrow, have typically been accompanied by market rallies.Stock indexes tracking larger companies have been buoyed in recent weeks. The S&P 500 has repeatedly set fresh records and is up more than 16 percent this year. However, the Russell 2000 index, which tracks smaller companies that are more sensitive to the ebb and flow of the economy, has largely flatlined, with weaker economic data this week nudging the index 0.5 percent lower ahead of the Independence Day holiday.Economists are forecasting that the June jobs report will show a healthy labor market, albeit with fewer jobs added and an easing in wage growth. Earlier this week, widely watched surveys of manufacturing and services activity both came in lower than forecast.Coupled with signs of cooling inflation, a deceleration in economic growth would give the Federal Reserve a justification for cutting rates, which have been held at high levels for months.Jerome H. Powell, the Fed chair, said at a conference this week that if the economic data continued to come in as it has recently, the Fed could consider cutting interest rates.“We’ve made quite a bit of progress in bringing inflation back down to our target, while the labor market has remained strong and growth has continued,” Mr. Powell said. “We want that process to continue.”Mr. Powell didn’t specify when the Fed would start to cut rates but investors are forecasting that it will take action in September, with roughly two quarter-point cuts expected for the year. Those bets have increased from the start of the week, when a cut in September was seen as more of a 50/50 proposition.The data has come in “a bit weaker than expected,” noted analysts at Deutsche Bank, “and it all added to the theme that the economy was losing momentum as we arrive in the second half of the year.” More