No rate cuts after “lack of further progress” on inflation

The Federal Reserve voted to keep interest rates at their highest level in 23 years as inflation has risen and the job market remains strong, likely pushing potential rate cuts even later in the year.

Interest rates will remain in the 5.25% to 5.5% range, where they have been since last July, the Federal Open Market Committee (FOMC) announced in a statement. Although the Fed signaled in December that it could begin cutting rates this year, most traders do not anticipate the first rate cuts to come before November, according to the CME FedWatch Tool.

The FOMC, the panel of Fed officials responsible for setting monetary policy, raised rates from near zero percent in March 2022 to their current level to curb pandemic-induced inflation. The Fed has since widened the path to rate cuts as inflation remains stubbornly sticky.

Inflation readings have increased since the beginning of the year. Prices rose 3.5% in March from a year earlier, according to the latest consumer price index, moving away from the Fed’s 2% target.

“In recent months, there has been no further progress toward the Committee’s 2 percent inflation target,” the FOMC said.

The Fed has a dual mandate of keeping inflation low and maximizing employment, and the FOMC is not yet confident that the economy is approaching the rare “soft landing,” when the economy slows enough to reduce inflation without trigger a recession.

Although many economists predicted a recession early last year, the U.S. economy has turned out to be remarkably resilient. The economy added 303,000 jobs last month, exceeding expectations, and the unemployment rate has remained below 4% for the longest period since the late 1960s.

But gross domestic product growth fell short of expectations during the first quarter of the year, slowing to an annualized gain of 1.6% from blockbuster annualized growth of 4.9% during the third quarter of 2023.

High borrowing costs have also weighed heavily on Americans.

The cost of buying a home has reached an all-time high, in part due to high mortgage rates and low housing supply.

Total household debt also reached $17.5 trillion in the fourth quarter of 2023, including $1.13 trillion in credit card debt, according to the New York Fed’s most recent report.Quarterly Report on Household Debt and Creditwhich also showed that default rates for all debt except student loans were rising.

“The Fed’s high interest rates are exacerbating our housing crisis while doing nothing to address the high prices that remain. Meanwhile, sky-high borrowing costs have driven household debt to an all-time high and defaults are rising,” said Rakeen Mabud, chief economist at the progressive Groundwork Collaborative and a former Treasury Department official.

“The Fed is failing families struggling to make ends meet and failing to reduce inflation. [Fed] Chair [Jerome] Powell should act to reduce rates,” Mabud added.

The politically independent Fed has been under pressure from both sides of the aisle as it weighs when and whether to cut interest rates.

Dozens of progressive Democratic lawmakers have called on the central bank to cut rates, highlighting the burden of high interest rates on Americans. Former President Trump, the presumptive Republican presidential nominee who nominated Powell for the top job during his first term in the White House, accused the Republican of being “political” and suggested Powell would cut rates to benefit Democrats in the upcoming election.

Biden, who nominated Powell for a second term when he took office, is battling negative perceptions about his handling of the economy and inflation.

A recent CNN poll found that 65 percent of voters said the economy is extremely important as they consider who they will vote for in the presidential election, up from 40 percent in 2020 and 46 in 2016. But Biden’s approval rating on the economy is just 34 percent , the research found. , and only 29 percent of voters approve of his handling of inflation.

The CNN poll found that Biden trails Trump by 6 percentage points, although an analysis of nearly 700 national polls by The Hill/Decision Desk HQ shows the incumbent trails his predecessor by less than 1 point.