Coming on top of its previous rate hikes, the Fed’s latest move could lead to further increases in the costs of mortgages, auto loans, credit cards and business borrowing.
Though inflation has eased to its slowest pace in two years, Wednesday’s hike reflects the concern of Fed officials thatis still growing too fast for inflation to fall back to their 2% target. With consumer confidence reaching its highest level in two years, Americans keep spending — crowding airplanes, traveling overseas and flocking to concerts and movie theaters. Most crucially, businesses keep hiring, with the unemployment rate still near half-century lows.
Some economists think the Fed might decide to forgo a rate increase in September before weighing a possible hike at its meeting in November. Economists at Goldman Sachs have downgraded the likelihood of recession to just 20%, from 35% earlier this year. Those at Deutsche Bank, among the first large banks to forecast a recession, have also been encouraged by the economy’s direction, though they still expect a downturn later this year.
Year-over-year inflation in June was 3%, according to the government, down sharply from a peak of 9.1% in June 2022. One cautionary note is that an inflation measure preferred by the Fed, which excludes volatile food and energy costs, was still up 4.6% in May from a year earlier. Other experts say they think the recent mild inflation readings can be sustained. Rental cost increases, which have already fallen, should drop further as more apartment buildings are completed.
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