Is the Fed Winning Its Fight Against Inflation?
The Federal Reserve Is Unlikely To Cut Interest Rates Wednesday As Inflation Remains High
The Federal Reserve could be moving into the second phase of its fight against inflation, as the economy remains strong but softens in the face of sustained high interest.
When the Federal Reserve’s policy-setting committee concludes its meeting Wednesday, it's widely expected to keep the influential fed funds rate at its current range of 5.25-5.50%. Officials have maintained and plan to keep rates at that 23-year high for the foreseeable future until they are confident that price pressures are under control and the annual inflation rate moves closer to the Fed's 2% annual target.
If the meeting plays out as anticipated, it will be nearly an entire year of the Fed holding interest rates steady, waiting for the economy and inflation to slow down as high borrowing costs on all kinds of loans act as sand in the economic gears. However, the economy—particularly the labor market—has been surprisingly resilient, giving Fed officials time to sit on high interest rates.
Cracks Forming in Some Corners of the Economy
While the slowdown hasn’t been as sharp as economists once anticipated—there’s been little sign of a long-anticipated recession—the limbo may not last much longer.
Households with lower levels of income are showing signs of stress, with more people falling behind on their credit card payments, which carry the highest interest rates in decades thanks in part to the Fed’s rate hikes. That’s starting to drag down consumer spending as more people react to the financial pressure, especially since raises are getting harder to wring from employers.
“The economy is softening,” Bob Schwartz, senior economist at Oxford Economics, wrote in a commentary. “Consumers, particularly the lower-income cohort, are running out of fuel, and wage growth is struggling to keep up with inflation."