Estimated read time: 3-4 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
WASHINGTON — The Federal Reserve is set to leave its key interest rate unchanged Wednesday as it seeks to guide the U.S. economy toward a "soft landing" of cooling inflation without triggering a deep recession.
Chairman Jerome Powell and other Fed officials have made clear that they're now inclined to move more gradually and cautiously toward their goal of 2% annual inflation. Their more deliberative approach follows the 11 rate hikes they unleashed beginning in March 2022, which substantially raised borrowing costs for consumers and businesses.
Yet with inflation pressures still underlying the economy, Powell won't be declaring victory on Wednesday, when the Fed's latest policy meeting ends. The attention of investors and economists will instead focus on what signals the Fed may send about its likely next actions.
The clearest signal will likely come from the Fed's 19-member interest-rate committee in the batch of economic forecasts its members issue each quarter. The updated projections are likely to show that the policymakers expect to raise their benchmark rate once more this year. That rate now stands at roughly 5.4%, its highest point in 22 years.
And those projections will likely also show that the Fed envisions fewer interest rate cuts next year than it did in June, when it projected three rate reductions in 2024. Even as the central bank is winding down its rate hikes, Powell and other Fed officials have said their key rate could remain at its peak well into next year. Analysts expect the Fed's forecasts Wednesday to show just one or two rate cuts in 2024.
Further clues about the future path of the Fed's interest rate policy could emerge at a news conference Powell will hold after the central bank issues a policy statement and its quarterly economic projections.
In raising its short-term interest rate at the fastest pace in four decades, the Fed has sought to moderate borrowing and spending, slow the economy and tame inflation. So far, consumer inflation, measured year over year, has tumbled from a peak of 9.1% in June of last year to 3.7% in August. Yet it's still well above the Fed's target.
Related:
Signals mixed as gas hikes drive August inflation to 3.7%
Rising gas prices across the U.S. helped drive annual inflation up from 3.2% in July to 3.7% in August, but core inflation eased as long-running price increases showed signs of continued slowing, according to a Labor Department report.Powell and other central bank officials have said that while they are making progress, they aren't yet done. Even as overall inflation has declined, the cost of many services — from auto insurance and car repairs to veterinary services and hair salons — are still climbing faster than they were before the pandemic.
Still, most recent data is pointing in the direction the Fed wants to see: Inflation in June and July, excluding volatile food and energy prices, posted its two lowest monthly readings in nearly two years.
And signs have grown that the job market isn't as robust as it had been, which helps keep a check on inflation: The pace of hiring has moderated. The number of unfilled openings fell sharply in June and July. And the number of Americans who have started seeking work has jumped. This has brought labor demand and supply into better balance and eased the pressure on employers to raise pay to attract and keep workers, which can lead them to raise prices to offset higher labor costs.
Yet the path back to lower inflation has already become more uneven: On a monthly basis, consumer prices jumped 0.6% in August, the most in more than a year. Compared with a year earlier, prices rose 3.7%, the second straight such increase.
Some emerging factors, meantime, are threatening to re-ignite inflation, weaken the economy, or both. Rising oil prices, for example, are making gasoline steadily more expensive. Should that trend continue, it would worsen inflation and leave consumers with less money to spend.
Next month, millions of Americans will have to resume their student loan payments when a pandemic-era pause ends. Even the so-far limited strike by the United Auto Workers union against the Big 3 U.S. automakers could slow growth and further inflate vehicle prices.
