HUD Articles

The Federal Reserve's policy committee chose to skip a rate hike at today's meeting, halting a series of 10 increases that stretches back to March 2022.

A breather—simply keeping rates where they are—gives the central bank more time to monitor the effects of its fight against inflation.

The central bank also signaled it may need to take rates higher this year, with half of the committee expecting rates to increase by another half-point.

News and analysis from the June meeting:

- Fed Holds Rates Steady, but Signals More Hikes Later This Year

- Odds of a Rate Hike in July Stand at 71%

- Powell: You Can Forget About a Rate Cut

- Officials See Inflation Sticking Around

- Rents Are Stubbornly High, Chair Says

- Dow Drops After Decision

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Rents Are Stubbornly High, Fed Chair Says.

Federal Reserve Chair Jerome Powell called out a lack of progress on bringing down rental costs on Wednesday. “You're just not seeing a lot of progress, not the kind of progress we want to see,” he said.

Although experts have forecasted a slowdown in rent increases, little progress has been recorded so far in the consumer price index. Annual rent inflation stood at 8.7% in May, while shelter costs overall were up 8% year over year. The rise in housing costs accounted for more than 60% of the total increase in core CPI in May.

“As a factual matter, we do need to see rents bottomed out here—or at least stay quite low in terms of their increases because we want inflation to come down and rental [costs] is a very large part of the CPI, about a third,” Powell said. “It's about half of that for the PCE, so it's important. It's something that we're watching very carefully.”

The PCE is an index of personal-consumption expenditures. Core PC, which excludes food and energy, is the bank’s preferred measure of inflation.

"The median participant [in the FOMC] now thinks that core PCE inflation on a 12 month basis will be 3.9% this year, Powell said. “So once again, every year for the past three years, it's gone up over the course of the year, and that's doing that again."

That is a signal that policy makers need to do more, the chairman said.

Odds of a Rate Hike in July Stand at 71%

Traders are already bracing for the Federal Reserve to unpause its rate-hike campaign.

Futures markets are predicting a roughly 70% chance of a rate increase at the Fed's July 25-26 meeting, according to the CME FedWatch Tool. The central bank kept rates steady at today's meeting, but signaled that it may need to lift rates higher this year.

During Jerome Powell's news conference, the chairman said the choice to pause was for this meeting alone and officials haven't made any decisions about rate increases at future meetings.

"We didn't make a decision about July," Powell said. "Of course, it came up in the meeting from time to time, but really the focus was on what to do today."

Powell added: "I would say about July two things: One, a decision hasn't been made. Two: I do expect that it will be a live meeting."

Forget About a Rate Cut, Powell Says

There are no rate cuts on the horizon.

"Not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate if you think about it,” Federal Reserve Chair Jerome Powell said, referring to policy makers’ projections of where rates are headed. “Inflation has not really moved down—it has not so far reacted much to our existing rate hikes.”

Although forecasts show inflation declining over the next couple of years, Powell said these predictions are “highly uncertain” at this stage. “Getting price stability back and restored will benefit generations of people—as long as it's sustained. It really is the bedrock of the economy and you should understand that that is our top priority.”

The CME FedWatch Tool currently puts the odds of a rate cut in December at 10%.

Speed Is No Longer Name of Game on Rates

While it was “very important” for the Federal Reserve to quickly implement significant rate hikes last year, Fed Chair Powell said Wednesday that the time for that level of urgency has passed.

As the U.S. gets closer and closer to the target 2% rate on inflation, it makes sense to moderate the pace of rate hikes, he said.

“It's reasonable, it's common sense to go a little slower,” Powell said. “It seemed, to us, to make obvious sense to moderate our rate hikes as we got closer to our destination.”

The latest consumer price index report, released Tuesday, showed headline price growth slowed to 4% year over year in May. Core CPI, a measure that excludes the usually more volatile food and energy costs, also declined on an annual basis to 5.3% from 5.5% the month before.

Moderating the pace of rate hikes gives members of the Federal Open Market Committee more information to make decisions, according to Powell. It also allows the economy a little more time to adapt, as the Fed makes its decisions going forward.

Powell also noted that the full extent of the consequences of this spring’s banking turmoil is still unknown. “We don't know what the extent is. We'll have some more time to see that unfolding.”

Call to Hold Rates Steady Driven by 'Uncertain Lags' Within Economy

The Federal Reserve has covered a lot of ground in its efforts to bring down inflation to the target 2% rate, but with the full effects of tightening yet to be felt, Chair Jerome Powell said Wednesday’s decision to skip a rate hike was an effort to “get this right.”

The “uncertain lags” as tighter monetary policy affects the economy, plus potential headwinds as banks become more hesitant to lend, drove the decision by the Federal Open Market Committee not to raise interest rates in June.

“Considering how far and how fast we moved, we judged it prudent to hold the target range stay to allow the committee to assess additional information and its implications for monetary policy in determining the extent of additional policy firming that may be appropriate to return inflation to 2%,” Powell said.

The committee plans to take into account the “cumulative” effect of tightened monetary policy, as well as economic and financial developments.

But rate hikes are hardly over, Powell indicated. While there’s been no decision about any rate hikes going forward, the Fed chair did indicate FOMC members expect additional rate increases will be needed this year to continue to fight persistent inflation. "Nearly all committee participants view it as likely that some further rate increases will be likely this year," Powell said.

Fed Sees Higher Growth, Inflation Sticking Around. There's Good News on Recession.

Federal Reserve officials see their preferred inflation gauge remaining higher this year than they had previously envisioned.

The central bank’s Summary of Economic Projections shows officials see core PCE inflation ending the year at 3.9%, nearly double the Fed’s 2% target. That suggests some further falling this year in core PCE, which was rising in April at a 4.7% annual rate.

But it also shows officials are now more pessimistic about their progress in reining in inflation: The last set of projections showed the Fed forecasting core PCE would close out 2023 at 3.6%.

Not all of the forecasts were as dour. Fed officials see economic growth for the fourth quarter of this year coming in at 1%, up from the 0.4% projection issued in March. They also expect the unemployment rate to close out the year at 4.1%, down from the previous prediction of 4.5%.

Fed officials now see faster growth in gross domestic product and continued low unemployment, which suggests little chance of recession this year.

"I continue to think, and this really hasn't changed, that there is a path to getting inflation back down to 2% without having to see the kind of sharp downturn and large losses of employment that we've seen in so many past instances," Powell said in response to press questions. "It's possible."

Fed Holds Rates Steady, but Signals More Hikes Later This Year

Federal Reserve officials opted to hold the benchmark interest rate steady at the conclusion of today’s Federal Open Market Committee meeting, skipping a rate increase for the first time in 15 months.

The call, which was expected, keeps the target for the federal-funds rate at 5% to 5.25%, but leaves the door open for future increases that could come as soon as the July meeting. The bank had raised rates 10 times in an unbroken series of increases that began in March 2022.

“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the Fed said in a statement.

Along with the decision to skip a hike, the Fed released a new Summary of Economic Projections on Wednesday that includes the much-watched outline of officials’ forecasts on where interest rates will be by the end of 2023, also referred to as the “Dot Plot.”

The majority of the members of the Federal Open Market Committee, which sets monetary policy, expect rates to rise further, an indication they believe additional tightening is necessary as the central bank fights inflation.

Nine of the 18 members expect to end the year with a benchmark rate between 5.5% and 5.75%, implying two more quarter-point boosts, while four officials forecasted rates would fall between 5.25% and 5.5%. Two members said they thought rates would remain steady while three predicted they would end above 5.75%.

In March, the last time the Fed released the projections, most FOMC members expected to end the year with the benchmark rate between 5% and 5.25%