The Federal Reserve this week declined to continue its recent strategy of interest rate increases. That news comes on the heels of reports that inflation growth cooled to 4% in May. Last June, prices were rising at a 9% pace. The most recent month’s inflation rate is still well above the Fed’s stated target rate of 2%.
Some economists suggest that inflation could subside even further, even with a pause in rate hikes. However, that optimism didn’t stop Federal Reserve Chair Jerome Powell from expressing concern in this remarks on Wednesday:
“We’re two and a quarter years into this, and forecasters, including Fed forecasters, have consistently thought that inflation was about to turn down … and been wrong. We want to get inflation down to 2%, and we just don’t see that yet.”
Additional interest rate increases could be on the horizon
In its report covering the news, the Associated Press reminded its readers that the current pause comes after ten consecutive hikes over the span of fifteen months. According to the Fed, they now plan to take time to evaluate the prior rate increases’ impact on both the economy and inflation.
Even as the Fed decided to leave rates untouched for now, there are signs that further hikes could be coming. A dozen Fed policymakers reportedly projected at least two additional rate increases this year. Another four projected one more hike. The remaining two forecast no additional change to the rates.
Perhaps the most important takeaway from Powell’s latest remarks is that the Fed is adopting a more cautious approach to rate changes. “Given how far we have come, it may make sense for rates to move higher but at a more moderate pace,” he said. “It’s just the idea that we’re trying to get this right.”
As some observers have noted, a further decline in inflation could result in no additional interest rate increases. If that happens, and the economy somehow stabilizes, then this could be one of the rare times when the Federal Reserve actually managed to achieve its desired but elusive “soft landing.”
