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The Fed confirms that Americans will have to wait longer for interest rate cuts

Ayelet Sheffey   

The Fed confirms that Americans will have to wait longer for interest rate cuts
  • The Federal Reserve held interest rates steady in its latest decision on Wednesday.
  • It means that interest rate cuts will likely not happen until the second half of the year.

The nation's central bank is once again leaving interest rates unchanged as it works to lower inflation.

On Wednesday, the Federal Open Market Committee announced that it's holding its key interest rate benchmark steady in a range of 5.25% to 5.5%, continuing the pause that first began in September last year. It follows new inflation data released earlier Wednesday morning — the Consumer Price Index found inflation unexpectedly cooled, increasing 3.3% year over year in May, a slight decrease from April's 3.4% reading.

Given that the jobs market is still hot, based on the latest data, and inflation is still above the Federal Reserve's 2% target, the bank's latest decision confirms that it's willing to wait until it feels confident about the economy's direction before cutting interest rates. The Summary of Economic Projections, released alongside the FOMC's interest rate decision, penciled in just one rate cut for 2024.

Fed Chair Jerome Powell has repeatedly stated over the course of the year that while he recognizes the financial strain high interest rates are bringing to Americans, they need to be patient as the Fed progresses in its restrictive monetary policies.

"We've said that we don't think it would be appropriate to dial back our restrictive policy stance until we gain greater confidence that inflation is moving down sustainably toward 2%," Powell said during a May press conference.

Powell said during that press conference that there are two paths the economy could take that would allow the Fed to cut rates: more data to show inflation decreasing or "unexpected weakening in the labor market."

Still, some Democratic lawmakers think it's time for the Fed to cut rates, especially after the European Central Bank did so earlier this month for the first time in five years. Sens. Elizabeth Warren, John Hickenlooper, and Jacky Rosen sent a letter to Powell on Monday requesting that he cut rates, particularly to give Americans relief from high housing and auto insurance costs.

"This housing-related inflation is directly driven by high interest rates: reducing rates will reduce the costs of renting, buying, and building housing, lowering Americans' single highest monthly expense," they wrote. "Lowering interest rates will likely also decrease the cost of auto insurance as well, which has risen due to factors completely unrelated to the cost of lending."

Rep. Brendan Boyle and Sen. Sheldon Whitehouse, top Democrats on the House and Senate budget committees, respectively, similarly sent a letter to Powell on Monday urging him to cut rates, writing that "doing so is warranted by the data, will preserve the economic progress that was so hard fought, and will allow workers and families to enjoy the benefits of a strong economy."

Still, Americans will have to wait until at least the second half of the year to see any interest rate cuts, meaning the upcoming economic inflation and jobs data will be critical in swaying the Fed's next move.