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    Fed Holds Rates Steady, Noting Lack of Progress on Inflation

    The Federal Reserve left interest rates unchanged for a sixth straight meeting and suggested that rates would stay high for longer.Federal Reserve officials left interest rates unchanged and signaled that they were wary about how stubborn inflation was proving, paving the way for a longer period of high borrowing costs.The Fed held rates steady at 5.3 percent on Wednesday, leaving them at a more than two-decade high, where they have been set since July. Central bankers reiterated that they needed “greater confidence” that inflation was coming down before reducing them.“Readings on inflation have come in above expectations,” Jerome H. Powell, the Fed chair, said at a news conference after the release of the central bank’s rate decision.Jerome H. Powell, the Fed chair, said that the central bank needed “greater confidence” that inflation was coming down before it decided to cut interest rates, which are at a two-decade high.Susan Walsh/Associated PressThe Fed stands at a complicated economic juncture. After months of rapid cooling, inflation has proved surprisingly sticky in early 2024. The Fed’s preferred inflation index has made little progress since December, and although it is down sharply from its 7.1 percent high in 2022, its current 2.7 percent is still well above the Fed’s 2 percent goal. That calls into question how soon and how much officials will be able to lower interest rates.“What we’ve said is that we need to be more confident” that inflation is coming down sufficiently and sustainably before cutting rates, Mr. Powell said. “It appears that it’s going to take longer for us to reach that point of confidence.”The Fed raised interest rates quickly between early 2022 and the summer of 2023, hoping to slow the economy by tamping down demand, which would in turn help to wrestle inflation under control. Higher Fed rates trickle through financial markets to push up mortgage, credit card and business loan rates, which can cool both consumption and company expansions over time.But Fed policymakers stopped raising rates last year because inflation had begun to come down and the economy appeared to be cooling, making them confident that they had done enough. They have held rates steady for six straight meetings, and as recently as March, they had expected to make three interest rate cuts in 2024. Now, though, inflation’s recent staying power has made that look less likely.Many economists have begun to push back their expectations for when rate reductions will begin, and investors now expect only one or two this year. Odds that the Fed will not cut rates at all this year have increased notably over the past month.Mr. Powell made it clear on Wednesday that officials still thought that their next policy move was likely to be a rate cut and said that a rate increase was “unlikely.” But he demurred when asked whether three reductions were likely in 2024.He laid out pathways in which the Fed would — or would not — cut rates. He said that if inflation came down or the labor market weakened, borrowing costs could come down.On the other hand, “if we did have a path where inflation proves more persistent than expected, and where the labor market remains strong, but inflation is moving sideways and we’re not gaining greater confidence, well, that could be a case in which it could be appropriate to hold off on rate cuts,” Mr. Powell said.Investors responded favorably to Mr. Powell’s news conference, likely because he suggested that the bar for raising rates was high and that rates could come down in multiple scenarios. Stocks rose and bond yields fell as Mr. Powell spoke.“The big surprise was how reluctant Powell was to talk about rate hikes,” said Michael Feroli, chief U.S. economist at J.P. Morgan. “He really seemed to say that the options are cutting or not cutting.”Still, a longer period of high Fed rates will be felt from Wall Street to Main Street. Key stock indexes fell in April as investors came around to the idea that borrowing costs could remain high for longer, and mortgage rates have crept back above 7 percent, making home buying pricier for many want-to-be owners.Fed officials are planning to keep rates high for a reason: They want to be sure to stamp out inflation fully to prevent quickly rising prices from becoming a more permanent part of America’s economy.Policymakers are closely watching how inflation data shape up as they try to figure out their next steps. Economists still expect that price increases will start to slow down again in the months to come, in particular as rent increases fade from key price measures.“My expectation is that we will, over the course of this year, see inflation move back down,” Mr. Powell said on Wednesday. But he added that “my confidence in that is lower than it was because of the data that we’ve seen.”As the Fed tries to assess the outlook, officials are likely to also keep an eye on momentum in the broader economy. Economists generally think that when the economy is hot — when companies are hiring a lot, consumers are spending and growth is rapid — prices tend to increase more quickly. Growth and hiring have not slowed down as much as one might have expected given today’s high interest rates. A key measure of wages climbed more rapidly than expected this week, and economists are now closely watching a jobs report scheduled for release on Friday for any hint that hiring remains robust.But so far, policymakers have generally been comfortable with the economy’s resilience.That is partly because growth has been driven by improving economic supply: Employers have been hiring as the labor pool grows, for instance, in part because immigration has been rapid.Beyond that, there are hints that the economy is beginning to cool around the edges. Overall economic growth slowed in the first quarter, though that pullback came from big shifts in business inventories and international trade, which often swing wildly from one quarter to the next. Small-business confidence is low. Job openings have come down substantially.Mr. Powell said Wednesday that he thought higher borrowing costs were weighing on the economy.“We believe that our policy stance is in a good place and is appropriate to the current situation — we believe it’s restrictive,” Mr. Powell said.As the Fed waits to make interest rate cuts, some economists have begun to warn that the central bank’s adjustments could collide with the political calendar.Donald J. Trump, the former president and presumptive Republican nominee, has already suggested that interest rate cuts this year would be a political move meant to help President Biden’s re-election bid by pumping up the economy. Some economists think that cutting in the weeks leading up to the election — either in September or November — could put the Fed in an uncomfortable position, drawing further ire and potentially making the institution look political.The Fed is independent of the White House, and its officials have repeatedly said that they will not take politics into account when setting interest rates, but will rather be guided by the data.Mr. Powell reiterated on Wednesday that the Fed did not and would not take into account political considerations in timing its rate moves.“If you go down that road, where do you stop? So we’re not on that road,” Mr. Powell said. “It just isn’t part of our thinking.” More

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    The Fed Tries to Steer Clear of Politics, but Election Year Is Making It Tough

    Economists are wondering whether political developments could play into both the Fed’s near-term decisions and its long-term independence.Federal Reserve officials are fiercely protective of their separation from politics, but the presidential election is putting the institution on a crash course with partisan wrangling.Fed officials set policy independently of the White House, meaning that while presidents can push for lower interest rates, they cannot force central bankers to cut borrowing costs. Congress oversees the Fed, but it, too, lacks power to directly influence rate decisions.There’s a reason for that separation. Incumbent politicians generally want low interest rates, which help to stoke economic growth by making borrowing cheap. But the Fed uses higher interest rates to keep inflation slow and steady — and if politicians forced to keep rates low and goose the economy all the time, it could allow those price increases to rocket out of control.In light of the Fed’s independence, presidents have largely avoided talking about central bank policy at all ever since the early 1990s. Pressuring officials for lower rates was unlikely to help, administrations reasoned, and could actually backfire by prodding policymakers to keep rates higher for longer to prove that they were independent from the White House.But Donald J. Trump upended that norm when he was president. He called Fed officials “boneheads” and implied that Jerome H. Powell, the Fed chair, was an “enemy” of America for keeping rates too high. And he has already talked about the Fed in political terms as he campaigns as the presumptive Republican nominee, suggesting that cutting interest rates before November would be a ploy to help President Biden win a second term.Some of Mr. Trump’s allies outside his campaign have proposed that the Fed’s regulatory functions should be subject to White House review. Mr. Trump has also said that he intends to bring all “independent agencies” under White House control, although he and his campaign have not specifically addressed directing the Fed’s decisions on interest rates.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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    What to Watch as the Fed Makes Its Interest Rate Decision

    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

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    Soft Landing or No Landing? Fed’s Economic Picture Gets Complicated.

    Stubborn inflation and strong growth could keep the Federal Reserve wary about interest rate cuts, eager to avoid adding vim to the economy.America seemed headed for an economic fairy-tale ending in late 2023. The painfully rapid inflation that had kicked off in 2021 appeared to be cooling in earnest, and economic growth had begun to gradually moderate after a series of Federal Reserve interest rate increases.But 2024 has brought a spate of surprises: The economy is expanding rapidly, job gains are unexpectedly strong and progress on inflation shows signs of stalling. That could add up to a very different conclusion.Instead of the “soft landing” that many economists thought was underway — a situation in which inflation slows as growth gently calms without a painful recession — analysts are increasingly wary that America’s economy is not landing at all. Rather than settling down, the economy appears to be booming as prices continue to climb more quickly than usual.A “no landing” outcome might feel pretty good to the typical American household. Inflation is nowhere near as high as it was at its peak in 2022, wages are climbing and jobs are plentiful. But it would cause problems for the Federal Reserve, which has been determined to wrestle price increases back to their 2 percent target, a slow and steady pace that the Fed thinks is consistent with price stability. Policymakers raised interest rates sharply in 2022 and 2023, pushing them to a two-decade high in an attempt to weigh on growth and inflation.If inflation gets stuck at an elevated level for months on end, it could prod Fed officials to hold rates high for longer in an effort to cool the economy and ensure that prices come fully under control.“Persistent buoyancy in inflation numbers” probably “does give Fed officials pause that maybe the economy is running too hot right now for rate cuts,” said Kathy Bostjancic, chief economist at Nationwide. “Right now, we’re not even seeing a ‘soft landing’ — we’re seeing a ‘no landing.’”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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    Higher for Longer After All? Investors See Fed Rates Falling More Slowly.

    Investors went into 2024 expecting the Federal Reserve to cut rates sharply. Stubborn inflation and quick growth call that into question.Investors were betting big on Federal Reserve rate cuts at the start of 2024, wagering that central bankers would lower interest rates to around 4 percent by the end of the year. But after months of stubborn inflation and strong economic growth, the outlook is starting to look much less dramatic.Market pricing now suggests that rates will end the year in the neighborhood of 4.75 percent. That would mean Fed officials had cut rates two or three times from their current 5.3 percent.Policymakers are trying to strike a delicate balance as they contemplate how to respond to the economic moment. Central bankers do not want to risk tanking the job market and causing a recession by keeping interest rates too high for too long. But they also want to avoid cutting borrowing costs too early or too much, which could prod the economy to re-accelerate and inflation to take even firmer root. So far, officials have maintained their forecast for 2024 rate cuts while making it clear that they are in no hurry to lower them.Here’s what policymakers are looking at as they think about what to do with interest rates, how the incoming data might reshape the path ahead, and what that will mean for markets and the economy.What ‘higher for longer’ means.When people say they expect rates to be “higher for longer,” they often mean one or both of two things. Sometimes, the phrase refers to the near term: The Fed might take longer to start cutting borrowing costs and proceed with those reductions more slowly this year. Other times, it means that interest rates will remain notably higher in the years to come than was normal in the decade leading up to the 2020 pandemic.When it comes to 2024, top Fed officials have been very clear that they are primarily focused on what is happening with inflation as they debate when to lower interest rates. If policymakers believe that price increases are going to return to their 2 percent goal, they could feel comfortable cutting even in a strong economy.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 Meets Amid Worries That Inflation Progress Might Stall

    Inflation had been moderating steadily, but it is now hovering around 3 percent. Will lowering it fully to normal levels prove difficult?Slowing America’s rapid inflation has been an unexpectedly painless process so far. High interest rates are making it expensive to take out a mortgage or borrow to start a business, but they have not slammed the brakes on economic growth or drastically pushed up unemployment.Still, price increases have been hovering around 3.2 percent for five months now. That flatline is stoking questions about whether the final phase in fighting inflation could prove more difficult for the Federal Reserve.Fed officials will have a chance to respond to the latest data on Wednesday, when they conclude a two-day policy meeting. Central bankers are expected to leave interest rates unchanged, but their fresh quarterly economic projections could show how the latest economic developments are influencing their view of how many rate cuts are coming this year and next.The Fed’s most recent economic estimates, released in December, suggested that Fed officials would make three quarter-point rate cuts by the end of 2024. Since then, the economy has remained surprisingly strong and inflation, while still down sharply from its 2022 highs, has proved stubborn. Some economists think it’s possible that officials could dial back their rate cut expectations, projecting just two moves this year.By leaving rates higher for slightly longer, officials could keep pressure on the economy, guarding against the risk that inflation might pick back up.“The Federal Reserve should not be in a race to cut rates,” said Joseph Davis, Vanguard’s global chief economist, explaining that the economy has held up better than would be expected if rates were weighing on growth drastically, and that cutting prematurely risks allowing inflation to run warmer in 2025. “We have a growing probability that they don’t cut rates at all this year.”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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    The jobs report comes as the Fed considers the timing of interest rate cuts.

    The Federal Reserve is considering when and how much to cut interest rates, and the employment report on Friday will give policymakers an up-to-date hint at how the economy is evolving ahead of their next policy meeting.Fed officials meet on March 19-20, and they are widely expected to leave interest rates unchanged at that gathering. But investors think that they could begin to lower interest rates as early as June, a view that Jerome H. Powell, the Fed chair, did little to either strongly confirm or upend during his congressional testimony this week.“We’re waiting to become more confident that inflation is moving sustainably to 2 percent,” Mr. Powell told lawmakers on Thursday. “When we do get that confidence, and we’re not far from it, it will be appropriate to dial back the level of restriction.”The Fed is primarily watching progress on inflation as it contemplates its next steps, but it is also keeping an eye on the labor market. If job growth is strong and the labor market is so robust that wages rise quickly, that could keep price increases higher for longer as companies try to cover their costs. On the other hand, if the job market begins to slow sharply, that could nudge Fed officials toward earlier interest rate cuts.For now, unemployment has remained low and wage growth has been solid — but not as strong as the peaks it reached in 2022. That has given Fed officials comfort that the supply of workers and the demand for new employees is coming back into balance, even without a painful economic slowdown.“Although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers,” Mr. Powell said this week.If the recent progress in restoring balance continues, it could allow the Fed to pull off what is often called a “soft landing”: a situation in which the economy cools and inflation moderates so the Fed can back away from aggressive interest rate policy without a recession. More