By HOWARD SCHNEIDER
WASHINGTON- The Federal Reserve is expected to leave interest rates unchanged for the first time since the US central bank kicked off a historically aggressive round of monetary policy tightening in March of 2022.
But don’t call it a pivot or a pause.
Policymakers at the end of their two-day meeting may well signal more rate increases are still to come once they take time to assess how the economy is evolving, whether the financial system remains stable, and if inflation is continuing to fall.
“We probably need a little more tightening, but it is not clear how much,” said Blerina Uruci, chief US economist in the fixed income division at T. Rowe Price Associates, noting that despite strength in recent employment and core inflation reports, a “nuanced” reading of the data showed both may be set to weaken.
“When there is this much uncertainty it makes sense to proceed cautiously,” she said.
A sense of caution about the economy competing with ongoing inflation concerns has led the Fed to this point, on the verge of what analysts are calling a “hawkish skip.”
While likely to forego an increase in borrowing costs after 10 consecutive hikes that have pushed the benchmark overnight interest rate to the current 5.00 percent-5.25 percent range, Fed policymakers at the same time are expected to show both in their language and projections that one or perhaps two more quarter-percentage-point hikes will still be needed by the end of 2023.
Data since the last Fed meeting in early May has left policymakers with a tough set of signals to read, and ample room for debate.
The economy continues to generate strong monthly job and wage gains, and one of the US central bank’s more closely watched measures – the ratio of open jobs to the number of unemployed – rose recently in a sign the labor market remains misaligned between the demand for workers and those available.
