The Federal Reserve is expected to hold interest rates steady at a two-day policy meeting this week but open the door to interest rate cuts as soon as September by acknowledging inflation has edged nearer to the U.S. central bank’s 2 percent target.
Policymakers in advance of the July 30-31 meeting were reluctant to commit to the timing of a first rate cut, but audibly cheered recent data showing price pressures were easing broadly, with headline inflation moving closer to the Fed’s target and evidence from job, housing and other markets suggesting that trend would continue.
Data on Friday showed the Fed’s preferred personal consumption expenditures price index, which was accelerating by as much as 7.1 percent on a year-over-year basis in 2022, rose by 2.5 percent in June after a 2.6 percent gain in May. Since March, in fact, the annualized month-to-month changes in the PCE price index show it rising at just 1.5 percent – half a percentage point below the Fed’s target. A companion measure stripping out volatile food and energy prices is trending at 2.3 percent over that same window – within sight of the 2 percent goal.
Combined with a broader sense that price pressures are easing, that data may be enough for Fed officials to change their description of inflation as “elevated” in next week’s policy statement, and note rising confidence that the pace of price increases will 스포츠 return to 2 percent. Policymakers have said they should start cutting interest rates before inflation fully returns to their target, and if upcoming data stays in line with recent months they may be running out of time.
The Fed “is only 50 basis points from the target … so it seems that is not very far,” said Jim Bullard, the former president of the St. Louis Fed and now dean of Purdue University’s Mitchell E. Daniels Jr. School of Business.
“Is it still elevated? Sure. But it is not as elevated as it was,” Bullard said. A slight change in the statement, perhaps describing it as “moderately elevated,” would “send a major signal to markets that you are taking on board all that disinflation that has occurred over the last year and you think it is for real and you don’t think it is going to turn around.”
The Fed lifted its benchmark interest rate to slow the economy after inflation surged, and has held it steady in the current 5.25 percent-to-5.50 percent range since last July, making the current run of tight monetary policy among the longest in recent decades.
Despite warnings last year that such strict financial conditions could trigger a recession, the Fed at least for now appears to have hit a sweet spot. Inflation has fallen, and while the unemployment rate has risen gradually it remains, at 4.1 percent, around what many Fed officials see as representing full employment.
Some data, including disappointing recent home sales and rising loan delinquencies, may point to weakness. But the most recent report on overall economic output was surprisingly strong, with growth at a 2.8 percent annualized rate in the second quarter. The Fed regards the economy’s underlying potential growth, consistent with stable inflation, at about 1.8 percent.
“They have had encouraging inflation data … Clearly the economy is slowing. The balance of risks is different than it was four months ago. Full stop,” said Nathan Sheets, global chief economist at Citi. “It feels like they want to be a little more certain, so signal in July and cut in September.”