The Federal Reserve paused its rate-hike campaign as inflation has shown signs of cooling, though economists believe the central bank isn’t done hiking rates this year in pursuit of its 2% target.
The US central bank signaled that any pause in interest rate hikes may be brief — more of a “skip” — with another rate hike likely as soon as their next meeting in late July.
Fed Chair Jerome Powell and other top policymakers have also indicated that they want to assess how much a pullback in bank lending might be weakening the economy.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run,” the central bank said in a statement. “In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5% to 5.25%.”
The move comes the day after the Bureau of Labor Statistics reported that the Consumer Price Index — a closely-monitored measure of inflation that tracks changes in the costs of everyday goods and services — rose 4% in May versus a year earlier.
Banks have been slowing their lending — and demand for loans has fallen — as interest rates have risen.
Some analysts have expressed concern that the collapse of three large banks last spring could cause nervous lenders to sharply tighten their loan qualifications and worsen the drop in lending.
Economists at Goldman Sachs have estimated, though, that such damage will be modest.
The latest inflation figures were a step down from April’s 4.9% increase and marks the smallest monthly increase in more than two years.
Last June, inflation had peaked at 9.1%.
The cooling inflation reflected sharply lower gas prices and slowdown in food inflation.
Excluding volatile food and energy costs, uncomfortably high inflation persisted: So-called core prices rose 5.3% year over year, down from 5.5% in April but far above the Fed’s 2% annual target.
At the same time, the gradual but steady decline in overall inflation suggests that the Fed’s rate hikes have had some success.
The central bank has jacked up its key rate by a substantial 5 percentage points since March 2022.
Last month, the Fed hiked interest rates by another quarter percentage point — bringing the benchmark funds rate from 5% to 5.25%.
Tuesday’s inflation data showed that most of the rise in core prices reflected high rents and used car prices.
Those costs are expected to ease later this year.
With Post Wires
This story originally appeared on NYPost
