US Economy News Today: Federal Reserve Says 'Modest' Improvements Have Been Made in Inflation Fight

Taylor Tompkins has worked for more than a decade as a journalist covering business, finance, and the economy. She has logged thousands of hours interviewing experts, analyzing data, and writing articles to help readers understand economic forces. She is the Economics Editor for news at Investopedia.

Diccon Hyatt is an experienced financial and economics reporter who has covered the pandemic-era economy in hundreds of stories over the past two years. He's written hundreds of stories breaking down complex financial topics in plainspoken language, emphasizing the impact that economic currents would have on individuals' finances and the market. He's also worked at The Balance, U.S. 1, Community News Service and the Middletown Transcript.

Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you.

Today, market watchers have their plates full with May's inflation numbers in the morning and the Federal Reserve's policy decision this afternoon.

Follow along with our live coverage of the Fed meeting below and watch Powell's press conference here:

Fed Chair Jerome Powell Says Officials Need to See More Good Data to Cut Interest Rates

Federal Reserve Chair Jerome Powell said the policy-setting committee is sticking to its strategy of depending on data to make interest rate decisions.

Powell continued to reiterate that officials are looking at risks and data to decide how to proceed. That echoes what he's said since the beginning of the year.

"Goals have moved toward better balance, but the economic outlook is uncertain," he said. "We remain highly attentive to inflation risks. We've stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%."

He continued: "We know that reducing policy restraint too soon or too much could result in a reversal of the progress that we've seen on inflation. At the same time, reducing policy strength too late or too little could unduly weaken economic activity and unemployment."

Federal Reserve Says 'Modest' Improvements Have Been Made in Inflation Fight

The Federal Reserve left their statement mostly unchanged this month, continuing to say they will rely on data to make rate cut decisions.

“Inflation has eased over the past year but remains elevated," The committee said in an official statement. "In recent months, there has been modest further progress toward the Committee's 2% inflation objective."

That language was identical to the statement from the Fed's May meeting other than changing "a lack of" further progress to "modest."

Federal Reserve Leaves Interest Rates As Is, Projects One Rate Cut By End of Year

The Federal Open Market Committee (FOMC), the central bank’s policy committee, said Wednesday that it would hold the influential interest rate in a range of 5.25% to 5.5%. That is where it’s been since last July after a campaign of rapid rate increases from near-zero starting in March 2022. The move was telegraphed by Fed officials well in advance and was anticipated by financial markets.

Fed officials also projected one rate cut by the end of the year, down from three when they last made their quarterly projections in March.

Read more about the Federal Reserve's decision here.

Refinancing Applications Surge as Rates Dip

Mortgage applications jumped for the week ending June 7, following a slow Memorial Day holiday week, as a dip in mortgage rates spurred refinance activity, data from the Mortgage Bankers Association (MBA) showed.

The association's index showed all mortgage applications increased by 15.6%, with refinancing jumping 28% and purchases higher by 9%.

The average interest rate on a 30-year, fixed mortgage dropped to 7.02%, according to the MBA's calculations.

“Lower rates earlier in the week meant a strong increase in refinance activity, particularly for VA borrowers, who jumped on the chance to lower their rates,” said MBA’s Chief Economist Mike Fratantoni.

Inflation Surprisingly Slid In May

Inflation moved down in May, faster than many forecasters predicted.

The Consumer Price Index showed Wednesday that prices were virtually unchanged in May, down from a 0.3% increase in April, according to the Bureau of Labor Statistics. Prices rose 3.3% over the year, slightly lower than the year-over-year rate in April. Both numbers were better than the consensus expectation from economists surveyed by the Dow Jones Newswires and the Wall Street Journal.

This report could help ease fears that inflation is flaring up again after price increases were surprisingly elevated in the first quarter. Instead, prices have continued their descent, falling significantly from the 41-year peak hit in June 2022, when the CPI was up 9.1% over the previous 12 months.

Federal Reserve’s officials meet later today and have said they’re looking for economic data—especially inflation reports—to show that consumer prices are firmly on the path down to a 2% annually before they’ll cut interest rates. The central bank has maintained its key fed funds rate at a 23-year high since last July, pushing up borrowing costs for mortgages and other loans, in hopes of slowing the economy and stifling inflation.

Before the report, traders were pricing in July 8.9% chance of a rate cut in July and 54.4% in September, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. Immediately after the data was released, those numbers jumped to 13.9% and 56.9% respectively.