Pinned
The Federal Reserve will release its latest interest rate decision on Wednesday and policymakers are widely expected to lift rates by a quarter point, to a range of 5 percent to 5.25 percent.
It would be the Fed’s 10th rate increase in a little over a year and would push rates to a level last seen in 2007. A key question is what will happen next: Will the Fed clearly signal that it is poised to stop raising rates for a while, or will policymakers be less definitive at a moment when inflation remains higher than they would like?
Here’s what to know about today’s decision:
The Fed will release its policy statement at 2 p.m. Eastern, followed by a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair.
Inflation, while moderating, is still higher than the 2 percent target the Fed aims for over time. Policymakers have said they will do what it takes to get price increases fully under control, which could prompt them to leave the door open to additional rate increases.
The recent banking turmoil will play a role in the Fed’s thinking. Three large U.S. banks have collapsed since early March, requiring government intervention, and others are still wobbly. Banks are expected to pull back on lending to businesses and consumers, which could weigh on the economy and make the Fed more likely to pause.
The Fed will also have to consider the risk of an imminent — and possibly destabilizing — showdown over the nation’s debt ceiling. The Treasury announced this week the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit.
A recession is possible, and maybe even probable. Fed staff members said at the central bank’s March meeting that they expected the economy to experience a “mild recession” in the wake of the recent banking turmoil. And Fed officials — including Mr. Powell — have suggested that a downturn could happen as officials try to slow the economy enough to bring inflation under control.
For now, markets are betting that the Fed will be stop raising rates after Wednesday’s move, and have even begun to place odds that the central bank could begin cutting rates as soon as June.
Pinned
The Federal Reserve will release its latest interest rate decision on Wednesday and policymakers are widely expected to lift rates by a quarter point, to a range of 5 percent to 5.25 percent.
It would be the Fed’s 10th rate increase in a little over a year and would push rates to a level last seen in 2007. A key question is what will happen next: Will the Fed clearly signal that it is poised to stop raising rates for a while, or will policymakers be less definitive at a moment when inflation remains higher than they would like?
Here’s what to know about today’s decision:
The Fed will release its policy statement at 2 p.m. Eastern, followed by a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair.
Inflation, while moderating, is still higher than the 2 percent target the Fed aims for over time. Policymakers have said they will do what it takes to get price increases fully under control, which could prompt them to leave the door open to additional rate increases.
The recent banking turmoil will play a role in the Fed’s thinking. Three large U.S. banks have collapsed since early March, requiring government intervention, and others are still wobbly. Banks are expected to pull back on lending to businesses and consumers, which could weigh on the economy and make the Fed more likely to pause.
The Fed will also have to consider the risk of an imminent — and possibly destabilizing — showdown over the nation’s debt ceiling. The Treasury announced this week the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit.
A recession is possible, and maybe even probable. Fed staff members said at the central bank’s March meeting that they expected the economy to experience a “mild recession” in the wake of the recent banking turmoil. And Fed officials — including Mr. Powell — have suggested that a downturn could happen as officials try to slow the economy enough to bring inflation under control.
For now, markets are betting that the Fed will be stop raising rates after Wednesday’s move, and have even begun to place odds that the central bank could begin cutting rates as soon as June.
Jim Tankersley
As usual, President Biden has a lot riding on the Fed’s decision today and whether it strikes the right balance on the economy. Mr. Biden is now officially running for re-election, and would very much like the economy to avoid recession between now and next November. But voters continue to rate inflation as a top concern.
Jim Tankersley
But unlike his predecessor, Donald J. Trump, Mr. Biden has refrained from weighing in publicly on what he would like to see the Fed do with interest rates.
Oil prices dropped sharply on Wednesday, falling below $70 a barrel, a sign that traders fear a recession and that lower energy demand is inevitable as interest rates rise.
Lower oil prices could play some role in the Federal Reserve’s thinking about inflation. While the central bank tends to focus on a measure of prices that excludes volatile energy and food prices, changes in oil prices have a big impact on the cost of other goods and services.
West Texas Intermediate, the U.S. oil price benchmark, fell more than 4 percent on Tuesday morning, adding to losses over recent days. The price of a barrel of crude oil is down more than 15 percent over the past three weeks, falling from about $83 on April 12 to about $68 on Tuesday.
The global Brent benchmark also slid by 4 percent on Tuesday to just over $72 a barrel. Brent prices topped $120 a barrel last June at the height of fears that the world would not have enough oil, in large part because of the geopolitical tensions created by Russia’s invasion of Ukraine.
The recent slide in oil prices is all the more remarkable because major oil producers like Saudi Arabia, Russia and their allies last month said they would cut production by 1.2 million barrels a day through the end of the year. That cut now appears to have had a limited impact, analysts at Macquarie Bank said in a research note. Russian oil exports have not declined, despite Western sanctions. China, India and other countries have continued to buy crude from Moscow at heavily discounted prices.
“The U.S. economy continues to evolve in a manner consistent with a recession commencing late this year,” the Macquarie analysts wrote. “Elsewhere, China’s recovery continues to be slower than expected.”
The lower oil price comes as warmer weather is beginning to encourage more driving and as crude oil inventories are dropping in the United States. The average price for a gallon of regular gasoline has decreased by six cents over the last week, to $3.59 a gallon. That is 60 cents below the average national price a year ago.
Diesel prices, which play a big role in the cost of shipping agricultural and industrial goods, have dropped even faster in recent weeks. Fuel now costs about $4.11 a gallon, down from $5.37 a year earlier.
Jeanna Smialek
Markets are betting that interest rates will be considerably lower by the end of the year: Basically, traders think that growth will crack or inflation will slow rapidly, prodding the Fed to switch its stance and cut borrowing costs. But some analysts have warned that investors — who generally like lower rates — are getting ahead of themselves.
Jeanna Smialek
Karen Karniol-Tambour, the co-chief investment officer at Bridgewater Associates, said during a panel at a banking conference on Monday that financial markets are now “primed for disappointment.” Inflation may come down more gradually than expected, she said, and if the economy doesn’t slow a lot the Fed “can’t afford” to ease rates.
The Federal Reserve’s decision about whether to continue raising interest rates comes at a fraught economic moment for the United States, with President Biden and Republicans in Congress locked in a standoff over how to raise the nation’s debt limit.
High inflation and instability in the banking system continue to weigh on the United States economy, but a more pressing concern is the prospect of a default. The federal government could be unable to pay all of its bills on time as soon as June 1, Treasury Secretary Janet L. Yellen warned this week, setting the stage for a self-inflicted economic calamity.
Analysts and economists have increasingly warned that a default could send financial markets plunging and tip the United States, and perhaps the global economy, into a recession.
A Treasury official pointed to the debt limit as a top risk facing the economy, saying that failure to raise the borrowing cap would cause a financial crisis of “historic proportion” and a sharp economic contraction that would leave millions of Americans facing unemployment. It would also probably trigger a spike in borrowing costs and prevent Social Security and Medicare beneficiaries from receiving their benefits.
The Fed has insisted that it is up to Congress to act to raise the $31.4 trillion debt limit, and Jerome H. Powell, the Fed chair, warned earlier this year that failing to do so would inflict long-term damage to the U.S. economy.
“Congress really needs to raise the debt ceiling,” Mr. Powell told the Senate Banking Committee in March. “If we fail to do so, I think that the consequences are hard to estimate, but they could be extraordinarily adverse and could do longstanding harm.”
Alan Rappeport
The debt ceiling debate is hanging over the economy at the moment. Lawmakers are stuck in a stalemate over how to raise the borrowing cap and economists increasingly warning about the catastrophic impact of a default.
Deborah B. Solomon
Powell is likely going to get asked about the standoff at his news conference. In March, he said Congress raising the debt ceiling “is really the only alternative.”
Jeanna Smialek
The Fed is expected to raise interest rates by a quarter point, and markets will be watching for any hint at what might come next. Most investors expect a pause, but the economists I’m talking to expect Jerome H. Powell, the Fed chair, to try to keep his options open during his 2:30 p.m. news conference.
Jeanna Smialek
The Fed will have to weigh a bunch of sweeping, challenging trends today. Inflation is still fast, and it looks stubborn. Consumers and the labor market have been fairly resilient. But the banking sector is in turmoil, the debt ceiling showdown is an increasingly urgent risk, and economists on the central bank’s own staff expect the nation to fall into a recession by the end of the year.
As the Federal Reserve has steadily lifted its key interest rate over the past year, Americans have seen the effects on both sides of the household ledger: Savers benefit from higher yields, but borrowers pay more.
Here’s how rising rates affect consumers.
Credit Cards
Credit card rates are closely linked to the Fed’s actions, so consumers with revolving debt can expect to see those rates rise, usually within one or two billing cycles. The average credit card rate was just over 20 percent as of April 26, according to Bankrate.com, up from around 16 percent in March last year, when the Fed began its series of rate increases.
Car Loans
Car loans tend to track the five-year Treasury note, which is influenced by the Fed’s key rate — but that’s not the only factor that determines how much you’ll pay.
A borrower’s credit history, the type of vehicle, loan term and down payment are all baked into that rate calculation. The average interest rate on new-car loans was 7 percent in March, according to Edmunds, up nearly a percentage point from six months earlier.
Student Loans
Whether the rate increase will affect your student loan payments depends on the type of loan you have.
The rate for current federal student loan borrowers isn’t affected because those loans carry a fixed rate set by the government. The Biden administration’s program to cancel up to $20,000 in federal loans has been blocked by legal challenges that recently reached the Supreme Court; the court heard arguments in February and is expected to reach a decision in coming months.
But new batches of federal loans are priced each July, based on the 10-year Treasury bond auction in May. Rates on those loans have already jumped: Borrowers with federal undergraduate loans disbursed after July 1 (and before July 1, 2023) will pay 4.99 percent, up from 3.73 percent for loans disbursed the year-earlier period.
Borrowers of private student loans should also expect to pay more: Both fixed- and variable-rate loans are linked to benchmarks that track the federal funds rate. Those increases usually show up within a month.
Mortgages
Rates on 30-year fixed mortgages don’t move in tandem with the Fed’s benchmark rate, but instead generally track the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations around inflation, the Fed’s actions and how investors react to all of it.
After climbing above 7 percent in November, for the first time since 2002, mortgage rates dipped close to 6 percent in February before drifting back up to 6.4 percent last week, according to Freddie Mac. The average rate for an identical loan was 5.1 percent the same week in 2022.
Other home loans are more closely tethered to the Fed’s move. Home equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the Fed’s rates.
Savings Vehicles
Savers seeking a better return on their money will have an easier time — yields have been rising, but not uniformly.
An increase in the Fed’s key rate often means banks will pay more interest on their deposits, though it doesn’t always happen right away. They tend to raise their rates when they want to bring more money in, and recent turmoil in the financial industry may push banks to raise rates to convince anxious depositors to keep money in their accounts.
Rates on certificates of deposit, which tend to track similarly dated Treasury securities, have been ticking higher. The average one-year C.D. at online banks was 4.7 percent at the start of April, up from 0.7 percent a year earlier, according to DepositAccounts.com.
A growing collection of congressional Democrats is calling on the Federal Reserve to pause its steady march of interest rate increases, warning the central bank is risking “engineering a recession that destroys jobs and crushes small businesses.”
Those lawmakers include prominent progressives like Senator Elizabeth Warren of Massachusetts, Senator Bernie Sanders of Vermont and Representative Pramila Jayapal of Washington, along with Senator Sheldon Whitehouse of Rhode Island, the chairman of the budget committee. They contend the Fed’s actions pose a particular risk to lower-paid workers, Black workers and others who are historically most likely to face job loss and financial pain if recession hits.
“While we do not question the Fed’s policy independence, we believe that continuing to raise interest rates would be an abandonment of the Fed’s dual mandate to achieve both maximum employment and price stability and show little regard for the small businesses and working families that will get caught in the wreckage,” the lawmakers wrote in a letter to Fed officials ahead of their meeting this week.
Progressive groups and lawmakers like Ms. Warren have urged the Fed to pause rate increases for months, saying they are the wrong tool to fight high inflation, which is moderating but remains above recent historical levels. Their calls have mounted as storm clouds gathered over the financial system, including the failures of three large regional banks in the past two months.
Notably, though, President Biden and his aides have not joined those calls, even as he begins a re-election campaign that could be heavily affected by the state of the economy. Administration officials continue to tread carefully on interest rates and other Fed policy questions, saying they are respecting Fed independence.
“We are very, very careful in speaking about the Fed and their policies and how they move forward,” Karine Jean-Pierre, the White House press secretary, told reporters on Monday.
Jerome H. Powell, the Fed chairman, has implicitly pushed back against liberals’ critiques of Fed rate increases in recent months, citing the harm inflation inflicts on economically vulnerable Americans.
“My colleagues and I are acutely aware that high inflation imposes significant hardship, as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing and transportation,” Mr. Powell said in a news conference in March.