The Federal Reserve, having raised interest rates at the fastest pace in four decades, is poised to leave rates alone for the first time in 15 months to allow time to gauge the impact of its aggressive drive to tame inflation.
Banks have been slowing their lending — and demand for loans has fallen — as interest rates have risen.
A government report Tuesday on inflation offered some ammunition to both camps, with overall price increases sharply slowing but some measures of underlying inflation remaining high. Consumer prices as a whole rose a modest 4% in May from 12 months earlier, the smallest such rise in more than two years and way below April’s 4.9% annual increase.
Those hikes have led to much higher costs for mortgages, auto loans, credit cards and business borrowing. The Fed’s goal is to achieve the delicate task of slowing borrowing and spending enough to cool growth and tame inflation, without derailing the economy in the process. Some economists have suggested that if those measures start to fall and reduce core inflation, the Fed might end up keeping its key rate unchanged for the rest of the year. Or the policymakers might decide to raise their key rate one last time in July, to about 5.4%, and keep it there.
The economy has fared better than the central bank and most economists had expected at the beginning of the year. Companies are still hiring at a robust pace, which has helped encourage many people to keep spending, particularly on travel, dining out and entertainment.
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