Wholesale used car prices, for example, fell in May, raising the prospect that retail prices will follow suit. Those costs are expected to ease later this year. In an encouraging sign, inflation data that the government issued this week showed that most of the rise in core prices reflected high rents and used car prices. This group is concerned that hiking too aggressively would heighten the risk of causing a deep recession. The 18 members of the committee have appeared divided between those who favor one or two more rate hikes and those who would like to leave the Fed’s key rate where it is for at least a few months and see whether inflation further moderates. “Skipping” a rate hike now might have been the most effective way for Powell to unite a fractious policymaking committee. The Fed has raised its benchmark rate by a substantial 5 percentage points since March of last year - the fastest pace of increases in 40 years. Some analysts have expressed concern that the collapse of three large banks last spring could cause nervous lenders to sharply tighten their loan qualifications. Banks have been slowing their lending - and demand for loans has fallen - as interest rates have risen. Powell and other top policymakers have also indicated that they want to assess how much a pullback in bank lending might be weakening the economy. Core inflation clocked in at 5.3 percent in May compared with 12 months earlier, well above the Fed’s 2 percent target. But core inflation remains chronically high. The central bank’s rate hikes have coincided with a steady drop in consumer inflation, from a peak of 9.1 percent last June to 4 percent as of May. inflation report shows smallest retail price increase in 2 years Average credit card rates have surpassed 20 percent to a record high. The Fed’s aggressive streak of rate hikes, which have made mortgages, auto loans, credit cards and business borrowing costlier, have been intended to slow spending and defeat the worst bout of inflation in four decades. The yield on the two-year Treasury note, which tends to track market expectations for future Fed actions, jumped from 4.62 percent to 4.77 percent. Immediately after the Fed’s announcement, which followed its latest policy meeting, stocks sank and Treasury yields surged. “We want to see inflation coming down decisively,” he said. He stressed that the Fed wants to see an inflation slowdown actually materialize before holding off on further rate hikes. At the same time, he expressed optimism that lower apartment rental costs, among other items, may help slow inflation in the coming months. And they expect “core” inflation, which excludes volatile food and energy prices, of 3.9 percent by year’s end, higher than they expected three months ago.Īt his news conference, Powell made clear that the Fed still regards the still-robust job market and the wage growth that has accompanied it as contributing to high inflation. Their updated forecasts show them predicting economic growth of 1 percent for 2023, an upgrade from a meager 0.4 percent forecast in March. One reason why the officials may be predicting additional rate hikes is that they foresee a modestly healthier economy and more persistent inflation that might require higher rates to cool. WATCH: Americans get relief from rising food and gas prices, but core inflation remains high “The process of getting inflation down is going to be a gradual one - it’s going to take some time.” “We understand the hardship that high inflation is causing, and we remain strongly committed to bring inflation back down to our 2 percent goal,” Fed Chair Jerome Powell said at a news conference. The policymakers also predicted that their benchmark rate will stay higher for longer than they did three months ago. Only two envisioned keeping rates unchanged. Twelve of the 18 policymakers forecast at least two more quarter-point rate increases. The economic projections revealed a more hawkish Fed than many analysts had expected. The central bank’s 18 policymakers envision raising their key rate by an additional half-point this year, to about 5.6 percent, according to economic forecasts they issued Wednesday. But top Fed officials want to take time to more fully assess how their rate hikes have affected inflation and the economy. The Fed’s move to leave its benchmark rate at about 5.1 percent, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation. Watch Powell’s remarks in the player above. But in a surprise move, the Fed signaled that it may raise rates twice more this year, beginning as soon as next month. © 2023 THE TENNESSEE TITANS.WASHINGTON (AP) - The Federal Reserve kept its key interest rate unchanged Wednesday after having raised it 10 straight times to combat high inflation.
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