The prospect of continued high rates could shake public confidence by triggering the demise of more banks or other vulnerable businesses as time goes on.
On the one hand, the central bank’s cautious approach increases the odds that the economy could slow gradually rather than sharply drop into recession — pulling off a so-called soft landing that would be a boon to Biden’s chances.
Still, the surprising strength of the economy has left Fed officials as uncertain about what’s ahead as everyone else. They now think borrowing costs are high enough to take a sizable bite out of economic growth, but they’re not confident enough to say no more rate hikes are coming. Though top policymakers have suggested they won’t raise rates at their June 13-14 meeting, they’ve left an increase on the table for the following one in July.
The most recent U.S. employment report provided a confusing mix of information: Companies added a strong 339,000 jobs in May, but households reported higher unemployment. The Fed doesn’t feel the need to slam on the brakes to get inflation all the way back down now. Policymakers just want to feel confident that the economy will get there in the next couple of years, and they’re watching the data to find out whether the economy is on that path.
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