After three straight hotter-than-expected inflation reports, Federal Reserve officials have turned more cautious about the prospect of interest rate cuts this year.
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At the same time, the economy is healthier and hiring is stronger than most economists thought it would be at this point. The unemployment rate has remained, the longest such streak since the 1960s. During the first quarter of the year, consumers spent at a robust pace. As a result, Chair Jerome Powell and other Fed officials have made clear that they are in no hurry to cut their benchmark rate.
During his last news conference in March, for example, Powell said the Fed's rate was “likely at its peak” and that, “if the economy evolves broadly as expected, it will likely be appropriate” to start cutting rates this year. That persistent strength has caused some Fed officials to speculate that the current level of interest rates may not be high enough to have the cooling effect on the economy and inflation that they need. If so, the Fed could even have to switch back to rate increases at some point.
The Fed is now allowing $95 billion of those securities to mature each month, without replacing them. Its holdings have fallen to about $7.4 trillion, down from $8.9 trillion in June 2022 when it began reducing them.
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