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Federal Reserve keeps interest rates unchanged
The Federal Reserve left the interest rate unchanged between 5.25% and 5.5% as annual inflation rates continued to stall.
WASHINGTON - High inflation continues to plague the economy, leading to the Federal Reserve announcing Wednesday that it doesn’t plan to cut interest rates until it has "greater confidence" that price increases are slowing sustainably to its 2% target.
The Fed has kept its key rate at a two-decade high of roughly 5.3%.
The combination of high interest rates and persistent inflation has also emerged as a potential threat to President Joe Biden’s re-election bid.
"In recent months," Chair Jerome Powell said at a news conference, "inflation has shown a lack of further progress toward our 2% objective."
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"It is likely that gaining greater confidence," Powell added, "will take longer than previously expected."
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GDP growth lower than expected, inflation continues
The first-quarter GDP report shows inflation is increasing a lot faster than expected, which weakens opportunity for interest rate cuts anytime soon. Dan Varroney, economics expert, joins LiveNOW from FOX.
At their last meeting on March 20, the Fed’s policymakers had projected three rate reductions in 2024, likely starting in June. But given the persistence of elevated inflation, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.
Rate cuts by the Fed would lead, over time, to lower borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards.
The Fed’s more cautious outlook stems from three months of data that pointed to chronic inflation pressures and robust consumer spending. Inflation has cooled from a peak of 7.1%, according to the Fed’s preferred measure, to 2.7%, as supply chains have eased and the cost of some goods has actually declined.
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Average prices, though, remain well above their pre-pandemic levels, and the costs of services ranging from apartment rents and health care to restaurant meals and auto insurance continue to surge. With the presidential election six months away, many Americans have expressed discontent with the economy, notably over the pace of price increases.
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Report: Gen Z can't hold onto money
A new report details results showing Gen Z can't hold onto money. LiveNOW from FOX's Mike Pache takes a deeper look.
The U.S. economy is healthier and hiring stronger than most economists thought it would be at this point. The unemployment rate has remained below 4% for more than two years, the longest such streak since the 1960s. And while economic growth reached just a 1.6% annual pace in the first three months of this year, consumer spending grew at a robust pace, a sign that the economy will keep expanding.
That economic strength has caused some Fed officials to speculate that the current level of interest rates might not be high enough to have the cooling effect on the economy and inflation that they need. If so, the Fed might even decide to switch back to rate increases at some point.
The Associated Press contributed to this report. This story was reported from Los Angeles.