Fed Is in No Rush to Cut Rates as Economy Holds Up
The New York Times
Federal Reserve officials are expected to leave interest rates unchanged at their meeting this week. They will also release a fresh set of economic projections.
Federal Reserve officials are entering an uncertain summer. They are not sure how quickly inflation will cool, how much the economy is likely to slow or just how long interest rates need to stay high in order to make sure that quick price increases are fully vanquished.
What they do know is that, for now, the job market and broader economy are holding up even in the face of higher borrowing costs. And given that, the Fed has a safe play: Do nothing.
That is the message central bankers are likely to send at their two-day meeting this week, which concludes on Wednesday. Officials are expected to leave interest rates unchanged while avoiding any firm commitment about when they will cut them.
Policymakers will release a fresh set of economic projections, and those could show that central bankers now expect to make just two interest rate cuts in 2024, down from three when they last released forecasts in March. Economists think that there is a small chance that officials could even predict just one cut this year. But whatever they forecast, officials are likely to avoid giving a clear signal of when rate reductions will begin.
Investors do not expect a rate cut at the Fed’s next meeting in July, after which policymakers will not meet again until September. That gives officials several months of data and plenty of time to think about their next move. And because the economy is holding up, central bankers have the wiggle room to keep rates unchanged as they wait to see if inflation will decelerate without worrying that they are on the brink of plunging the economy into a sharp downturn.
“They’ll continue to suggest that rate cuts are coming later this year,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. He said that he expected a reduction in September, and that he did not think the Fed would give any hint at timing this week.
