A line of unsold 2024 Edge utility vehicles sit at a Ford dealership Sunday, May 19, 2024, in Denver. Policymakers’ willingness to keep their key rate at a two-decade peak — thereby keeping costs painfully high for mortgages, auto loans and other forms of consumer borrowing — carries its own risks.A for sale sign stands outside a single-family residence on Wednesday, May 22, 2024, in southeast Denver.
The Fed’s mandate is to strike a balance between keeping rates high enough to control inflation yet not so high as to damage the job market. While most measures show that growthremain healthy, some gauges of the economy have begun to reveal signs of weakness. The longer the Fed keeps its benchmark rate elevated, the greater the risk of causing a downturn.
Last week, economists at Goldman Sachs became the latest analysts to give up on a rate cut in July, pushing back their forecast for the first of two cuts they expect this year to September. Oxford Economics made a similar call last month. Bank of America foresees just one Fed rate cut this year, in December. Just months ago, many economists had forecast the first rate cut for March of this year.
“There’s a lot of signs that consumers are kind of losing some steam and hiring demand is cooling,” said Julia Coronado, a former Fed economist who is president of MacroPolicy Perspectives. “You could see more of a slowdown.” Last month, rent and homeownership, along with hotel prices, accounted for two-thirds of the annual rise in “core” inflation, which excludes volatile food and energy costs. Powell and other Fed officials have acknowledged that they had expected rents to fall more quickly than they have.
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