Fed could announce fewer rate cuts due to persistent inflation

The officials of the Federal Reserve They could make official on Wednesday what has been clear for many weeks: since inflation remains above the 2% target, they will reduce their forecast for cutting interest rates.

In a series of quarterly economic forecasts they will issue after their most recent meeting ends, policymakers are expected to project cutting their benchmark rate twice by the end of the year, instead of the three they had forecast in March.

The updated economic forecast of the Fed, which will air Wednesday afternoon, will likely be influenced by the government’s inflation data, released this morning. That report shows that inflation fell unexpectedly. Prices were broadly unchanged from April to May, while core inflation — which excludes volatile food and energy costs — rose just 0.2%, the smallest increase since October.

Compared to a year ago, consumer prices increased 3.3% in May, down from 3.4% the previous month. Annual core inflation slowed from 3.6% in April to 3.4% in May, the lowest annual pace in three years.

The rate policies of the Fed They often have a significant impact on the cost of mortgages, auto loans, credit card interest, and other forms of consumer and business loans. The reduction in the forecast for rate cuts would mean that such credit costs are likely to remain high for longer, disappointing potential real estate buyers and other consumers.

Even so, the quarterly projections of the Fed on future interest rate cuts are by no means fixed in time. Policymakers frequently review their plans for rate cuts or increases depending on how measures of economic growth and inflation evolve over time.

But if credit costs remain high in the coming months, they could also have consequences on the presidential race. Although the unemployment rate is just 4%, hiring is strong and consumers continue to spend, voters have a generally bleak view of the economy under this administration. In large part, this is because prices remain much higher than they were before the pandemic. The increase in credit prices imposes an additional financial burden.