Live Updates: Fed Holds Rates, Noting ‘Lack of Further Progress’ on Inflation (2024)

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What to know about the Fed’s rate decision.

“Readings on inflation have come in above expectations,” Jerome H. Powell, the Fed chair, said at a news conference following the release of the central bank’s rate decision.

The 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 2022 highs, it remains well above the Fed’s 2 percent goal — calling 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, 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 cooling demand. Higher Fed policy 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 had expected to make three interest rate cuts in 2024 as recently as March. 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 think that their next policy move is likely to be a rate cut and said that a rate increase is “unlikely.” But he demurred when asked whether three reductions are likely in 2024.

He laid out pathways in which the Fed would — or would not — cut rates. He said that if inflation comes down or the labor market weakens, borrowing costs could come down.

“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 those comments: Stocks rose and bond yields fell as Mr. Powell was speaking.

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 to expect a longer stretch of elevated borrowing costs, and mortgage rates have crept back above 7 percent, making home buying pricier for many want-to-be owners.

But 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. Inflation has cooled sharply from its 2022 peak of 7.1 percent, but at 2.7 percent, it is still well above the Fed’s 2 percent goal.

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.”

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Meanwhile, the strength of the economy means that the Fed can afford to be patient, he says. If the economy starts to lose momentum, the Fed has time to react.

Many Fed watchers have suggested that policymakers would be reluctant to cut rates right before the election lest they appear to be trying to help Biden. But, as he has before, he rejects that idea. “It’s hard enough to get the economics right,” he says, adding, “If you go down that road when do you stop?”

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Republicans have recently been raising the specter of “stagflation” in attacks on Biden; Powell is having none of that here.

The “stagflation” narrative frankly doesn’t make much sense. The risk right now is that the Fed is failing to cool off the economy, and that it will have to get more aggressive to tame inflation. That’s a real concern, but it’s nothing at all like the “stagflation” of the 1970s.

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The two-year Treasury yield, which is sensitive to changes in interest rate expectations, is also falling.

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Powell responds by saying he is confident interest rates are cooling down the economy and that he believes they will prove “sufficiently restrictive” over time.

And that move is being exacerbated after Powell said that he thinks a rise in interest rates is “unlikely”.

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Ben, as an enthusiastic viewer of Fed conferences — and an occasional participant — I really enjoy a clever reporter question to Powell. But today, I’d love to see some simple efforts to pin him down on your queries. Are further rate increases on the table? When might a rate cut come? And what, exactly, does the Fed need to see before moving again?

I joked earlier that the first question should be, “June?” The second should be, “July?” And the third should be, “September?”

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“That seems like a small change,” Sharif wrote in a note to clients, “but it suggests that the balance of risks is now fairly even and that perhaps there’s less concern about future labor market strength being inflationary.”

He continues: “It seems like the Fed believes that the imbalance, i.e., labor demand exceeding supply, has now run its course. If that’s the case, then there’s less to fear in terms of future solid labor market reports.”

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Some Democrats are urging Biden to put pressure on the Fed.

The White House has repeatedly cited the Fed’s independence as the reason that Mr. Biden will not push the Fed to cut interest rates. But some Democrats are now urging the president to jettison that approach. That is because the central bank, which was expected to cut rates early in 2024, is now unlikely to start reducing them anytime soon.

High interest rates have made the dollar stronger.

High Fed rates, a response to stubborn inflation, mean that American assets offer better returns than much of the world, and investors need dollars to buy them. In recent months, money has flowed into the United States with a force that’s being felt by policymakers, politicians and people from Brussels to Beijing, Toronto to Tokyo.

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Why haven’t higher rates crushed economic growth?

For many people in middle and upper income groups — especially those who own their homes outright or who locked in cheap mortgages when rates were at rock bottom — this is a fairly sunny economic moment. Their house values are mostly holding up in spite of higher rates, stock indexes are hovering near record highs, and they can make meaningful interest on their savings for the first time in decades.

Wall Street is worried about the cost of government debt.

On Monday, the Treasury Department announced that it expected to borrow $243 billion for the three months through June, $41 billion more than it had forecast in January. Much of that new borrowing will come via inflation-protected bonds and shorter-dated bills that mature in under one year, putting upward pressure on the short-dated interest rates the Fed targets.

When the government raised its borrowing needs last summer, it prompted a sharp sell-off in the bond market, lifting market interest rates, raising the cost of borrowing for companies and consumers, and weighing on stock prices.

Those fears subsided toward the end of the year as inflation slowed, giving rise to hopes that interest rates would soon begin to fall. But they did not disappear: With inflation proving stubborn, worries over the Fed keeping rates high for longer have returned, reviving concerns about debt sustainability.

The two-year Treasury yield, which is sensitive to changes in Fed rate expectations, has recently risen back above 5 percent for the first time since October last year, up from just 4.24 percent at the start of the year.

With higher rates comes renewed pressure on the stock market. While the S&P 500 remains roughly 5 percent higher for the year, it has fallen more than 4 percent from its peak at the end of March.

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What the Fed’s moves mean for mortgages, credit cards and more.

The central bank has raised its key interest rate to 5.33 percent from near zero in a series of increases between March 2022 and last summer, and they’ve remained unchanged since then. The goal was to tamp down inflation, which has cooled considerably, but is still higher than the Fed would like, suggesting that interest rates could remain high for longer than previously expected.

For people with money stashed away in higher-yielding savings accounts, a continuation of elevated rates translates into more interest earnings. But for people saddled with high cost credit card debt, or aspiring homeowners who have been sidelined by higher interest rates, a lower-rate environment can’t come soon enough.

“U.S. consumers should be prepared to continue to face relatively high interest rates across a range of credit products for a while longer, with any potential rate decreases likely being pushed to later in 2024,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion, one of the nation’s three largest consumer credit companies.

Here’s how different rates are affected by the Fed’s decisions — and where they stand.

Credit Cards

Credit card rates are closely linked to the central bank’s actions, which means that consumers with revolving debt have seen those rates quickly rise over the past couple of years. Increases usually occur within one or two billing cycles, but don’t expect them to fall quite as rapidly even when rates eventually decline.

“The urgency to pay down high-cost credit card or other debt is not diminished,” said Greg McBride, chief financial analyst at Bankrate. “Interest rates took the elevator going up, but they’re going to take the stairs coming down.”

That means that consumers should prioritize repayment of higher-cost debt and take advantage of zero-percent and low-rate balance transfer offers when they can.

The average rate on credit cards with assessed interest was 22.63 percent at the end of March, according to the Federal Reserve, compared with 20.92 percent a year earlier and 16.17 percent at the end of March 2022, when the Fed began its series of rate increases.

Car Loans

Auto loan rates remain elevated, which, coupled with higher car prices, continues to squeeze affordability. But if interest rates won’t budge, then automakers and dealerships may have to find ways to incentivize buyers to stoke demand.

“As signs indicate that the Fed isn’t ready to cut rates just yet, the burden will shift to automakers to further subsidize interest rates and offer incentives if they want to sustain new vehicle sales,” said Joseph Yoon, a consumer insights analyst at Edmunds, an automotive research firm.

“In the used market, dealerships will have to decide if they are comfortable holding onto inventory longer or adjusting pricing down to meet consumers’ financial situations,” he added.

The average rate on new-car loans was 7.2 percent in March, according to Edmunds, up from 7 percent last March and 4.5 percent in the same month of 2022. Used-car rates were even higher: The average loan carried an 11.9 percent rate in March, up from 11.4 percent in the same month in 2023 and 8.1 percent in 2022.

Car loans tend to track with the yield on the five-year Treasury note, which is influenced by the Fed’s key rate — but that’s not the only factor that determines how much you’ll pay. A borrower’s credit history, the type of vehicle, the loan term and the down payment are all baked into that rate calculation.

Mortgages

Mortgage rates have again been on the rise, with the most popular loan crossing the 7 percent mark in recent weeks, making homeownership an even costlier proposition.

The average 30-year mortgage rate was 7.17 percent as of April 25, according to Freddie Mac, compared with 6.43 percent in the same week last year.

Rates on 30-year fixed-rate mortgages don’t move in tandem with the Fed’s benchmark, but instead generally track with the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations about inflation, the Fed’s actions and how investors react.

Other home loans are more closely tethered to the central bank’s decisions. Home-equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the Fed’s rates. The average rate on a home-equity loan was 8.63 percent as of April 24, according to Bankrate, while the average home-equity line of credit was 9.10 percent.

Student Loans

Borrowers who hold federal student loans are not affected by the Fed’s actions because such debt carries a fixed rate set by the government.

But batches of new federal student loans are priced each July based on the 10-year Treasury bond auction in May. And those loan rates have climbed: Borrowers with federal undergraduate loans disbursed after July 1 (and before the upcoming July 1) will pay 5.5 percent, up from 4.99 percent for loans disbursed in the same period a year before. Just three years ago, rates were below 3 percent.

Graduate students taking out federal loans will also pay about half a point more than the rate from a year earlier, or about 7.05 percent on average, as will parents, at 8.05 percent on average.

Borrowers of private student loans have already seen rates climb because of previous rate increases: Both fixed- and variable-rate loans are linked to benchmarks that track the federal funds rate, the Fed’s benchmark rate.

Savings Vehicles

Savers tend to benefit when the federal funds rate is higher because many banks will pay more on their savings accounts — particularly if they want to attract more deposits. (Many banks earn money on the difference between their cost of funds, like deposits, and the interest rate they charge on loans.)

And online institutions tend to price their online savings accounts much more competitively than their brick-and-mortar counterparts.

Even though the Fed’s benchmark rate has remained unchanged, several online banks have begun to dial back the rates they pay to consumers because they expect the Fed to cut rates at some point this year. Certificates of deposit, which tend to track similarly dated Treasury securities, have already seen their rates drop multiple times this year.

The average one-year C.D. at online banks was 4.94 percent as of April 1, down from its peak yield of 5.35 percent in January, but up from 4.72 percent a year earlier, according to DepositAccounts.com. But you can still find one-year C.D.s with yields of more than 5 percent.

Most online banks have held their savings account rates relatively steady: The average yield on an online savings account was 4.43 percent as of April 1, down only slightly from a peak of 4.49 percent in January, according to DepositAccounts.com, and up from 3.76 percent a year ago. But several major online institutions have cut their rates a bit over the last couple of months — Ally Bank cut its online savings account to 4.25 percent from 4.35 percent, for example, and Marcus, by Goldman Sachs, now pays 4.40 percent, down from 4.50 percent.

Yields on money-market funds offered by brokerage firms are even more alluring because they’ve tracked the federal funds rate more closely. The yield on the Crane 100 Money Fund Index, which tracks the largest money-market funds, was 5.13 percent on April 30.

Job openings and hiring are cooling, a trend likely welcomed by the Fed.

A slowing labor market would be welcome news for policymakers at the Federal Reserve, who are concluding a two-day meeting on Wednesday amid signs that inflation is proving difficult to stamp out. Fed officials have said they see falling job openings as a sign that supply and demand are coming into better balance.

For workers, however, that rebalancing could mean a loss of the bargaining power that has brought them strong wage gains in recent years. The number of workers voluntarily quitting their jobs fell to 3.3 million, the lowest level in more than three years and a far cry from the more than four million a month who were leaving their jobs at the peak of the “great resignation” in 2022.

“This continued moderation is largely positive for the market and the economy overall, and is mostly sustainable for the time being,” Nick Bunker, economic research director for the Indeed Hiring Lab, wrote in a note on Wednesday. But, he added, “if job openings continue to decline for much longer, hiring of unemployed workers will eventually retreat enough to drive unemployment up.”

There is little sign of that so far, however. Despite high-profile job cuts at a few large companies, layoffs remain low overall, and fell in March. And while job openings have fallen, there are still about 1.3 available positions for every unemployed worker. Data released by the Labor Department on Tuesday showed that wage growth picked up in the first three months of the year, suggesting workers retain some leverage.

The data released Wednesday came from the Labor Department’s monthly survey of job openings and labor turnover. Economists will get a more timely snapshot of the labor market on Friday, when the government releases its monthly jobs report.

Forecasters expect that data to show that employers added about 240,000 jobs in April and that the unemployment rate remained below 4 percent for the 27th consecutive month.

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The Fed is trying to steer clear of politics, but that’s tough in an election year.

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 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 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.

Direct White House input into Fed policy seems “far-fetched,” said Gabriel Chodorow-Reich, an economics professor at Harvard. But he noted that administrations could chip away at the central bank’s independence in more subtle ways, including through whom they choose to nominate to key Fed positions (Mr. Powell’s term as chair expires in May 2026) and through extended pressure campaigns.

“There are elements of this that could happen that are not immediately cataclysmic, but over time, by reducing the Fed’s independence, they make it more difficult” for the Fed to make hard decisions like raising rates to slow the economy, Mr. Chodorow-Reich said.

And in the near term, the reality that the Fed seems likely to remain a political topic headed into the election has some economists wondering whether central bankers would feel comfortable starting to cut interest rates at their September or November meeting, even if inflation cools enough for them to do so. Making a move right before the election could draw even more attention to the Fed.

But some economists think that officials will still cut rates late this year if that’s what is warranted, regardless of the political backlash that could result.

“My guess is that ceteris paribus, they’d like to stay away from right on top of the election,” said Donald Kohn, a former Fed vice chair who is now at the Brookings Institution, referring to the Latin phrase meaning that all else is held equal. “Other things won’t be equal. The incoming data will be the main factor governing when they cut interest rates.”