The Federal Reserve is expected to halt a series of aggressive rate hikes on Wednesday, ending a streak of 10 consecutive rate hikes stretching back 15 months.
The decision comes a day after new data showed consumer prices rose 4% last month compared to a year ago, slowing more than economists expected and boosting hopes that inflation will continue to return to normal levels.
more | Inflation fell significantly in May, returning closer to normal levels
Inflation has fallen significantly from last summer’s peak but remains at about double the Fed’s 2% target.
The slowdown in price rises coincided with a sharp rise in the Fed’s benchmark interest rate last seen in the 1980s.
Economists surveyed by Bloomberg expect the Federal Reserve to hold off on raising interest rates on Wednesday as it assesses the continuing impact of past policy decisions.
For more than a year, the Federal Reserve has been aiming to curtail price increases by slowing the economy and reducing consumer demand.
Data released in recent months suggests that the policy approach has succeeded in slowing economic activity.
US gross domestic product grew at a slow 1.1% annual rate over the three months ending in March, according to government data.
Meanwhile, three of the country’s 30 largest banks failed over a period of weeks, starting in March.
While high interest rates contributed to the crashes, each bank also held a large portion of uninsured depositors, who tend to panic without government support for their money.
Still, consumer spending and employment remained strong, stoking hope among some economists that policymakers can succeed in curbing inflation while avoiding a recession.
A jobs report earlier this month showed that the labor market grew strongly in May, adding 339,000 jobs compared to Wall Street’s estimate of just 195,000.
more | US employers added a surprisingly strong 339,000 jobs in May in a sign of the health of the economy
Since the economy continues to show strength, Bank of America said in a research note last week that the Fed’s expected decision to halt rate hikes is a “close call.”
“While the incoming data points to resilience in activity and adherence to inflation, the Fed appears to want more time to monitor policy lag and regional bank pressure,” BofA said.
“We don’t think the Fed is close to signaling a prolonged pause,” the bank added. “Instead, we would expect the Fed to say inaction in June is more akin to skipping — for now.”
When announcing the latest rate hike by the central bank last month, Fed Chair Jerome Powell noted the removal of a sentence that appeared in the Fed’s previous rate hike announcement that said “some additional policy increases may be appropriate.”
Powell called the omission in the announcement “meaningful,” saying that a decision on any further price increase would be “data-driven.”
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