A committee of Federal Reserve officials on Wednesday voted to keep interest rates at a 22-year high after unexpectedly high job growth and inflation delayed plans to cut interest rates.
The Federal Open Market Committee (FOMC), the committee of Fed officials responsible for setting borrowing costs, voted to keep the benchmark interest rate in the range of 5.25% to 5.5% set last June. The FOMC unanimously decided to keep interest rates unchanged.
The central bank is not yet convinced that inflation, which has fallen sharply since the Fed began raising interest rates in March 2022, is on pace to reach its annual target of 2%.
The annual inflation rate, as measured by the Labor Department’s Consumer Price Index (CPI), reached a 40-year high of 9.1% in June 2022, before declining significantly to 3.1% in January. decreased. However, the inflation rate recovered slightly last month to 3.2%.
On the other hand, the job market continues to defy expectations. The U.S. economy added 275,000 jobs last month, on top of strong gains in December and January, but the unemployment rate remained below 4%.
The unemployment rate has remained consistently below 4% for the past two years, the longest streak below 4% since the 1960s.
Flattening inflation and strong job growth dashed earlier expectations that the Fed would cut rates for the first time in March. Economists are now focusing on the central bank’s June meeting for possible rate cuts.
Fed officials have signaled they are open to lowering rates next year after keeping interest rates on hold until the end of 2023. In their December forecasts, all but three officials said they expected two rate cuts in 2024, while the largest group said they expected three cuts.
The politically independent Fed has faced heated criticism from both sides of the aisle over its handling of interest rates and inflation.
Despite widespread expectations that the central bank would keep rates unchanged, members of the Congressional Progressive Caucus sent a letter to Fed Chairman Jerome Powell on Monday urging the central bank to lower rates at its March meeting. .
“Core inflation is already in line with the Federal Reserve’s target, and today’s overly contractionary monetary policy will unnecessarily exacerbate housing market imbalances and homeownership affordability, and bank “This could create risks to the stability of the economy and the achievement of robust employment and wage growth and associated reductions in economic and racial inequality,” the lawmakers wrote.
Former President Trump last month accused Powell, a lifelong Republican who Trump himself nominated for him in 2017, of being “political.” Trump also suggested that Powell might consider lowering rates to help Democrats in the 2024 election.
“If we lower interest rates, we’ll probably do something to help the Democrats,” Trump said. “It looks to me like he’s probably trying to lower interest rates to get people elected, but I don’t know.”
Chairman Powell said partisan politics would be an issue as the central bank seeks to bring the economy into a rare “soft landing” (a technical term for using policy tools such as interest rate hikes to lower prices without triggering a recession). It has repeatedly said it will not affect the central bank.
But the Fed’s interest rates could be a major concern in the upcoming election, when the economy, which has shown a surprising turnaround since a year ago when many economists predicted a recession, is one of voters’ top concerns. may play a role.
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