Fed is Unlikely to Cut Rates           06/18 06:45

   The inflation-fighters at the Federal Reserve are expected to keep their key 
interest rate unchanged Wednesday for the fourth straight time. That's likely 
to shift attention to how many interest rate cuts they forecast for this year.

   WASHINGTON (AP) -- The inflation-fighters at the Federal Reserve are 
expected to keep their key interest rate unchanged Wednesday for the fourth 
straight time. That's likely to shift attention to how many interest rate cuts 
they forecast for this year.

   It's widely expected that the 19 Fed officials that participate in the 
central bank's interest-rate decisions will project two rate cuts for this 
year, as they did in December and March. But some economists expect that one or 
both of those cuts could be pushed back to 2026.

   The Fed will almost certainly keep the short-term rate it controls at about 
4.3%, economists say, where it has stood since the central bank last cut rates 
in December. Since then, it has stayed on the sidelines while it evaluates the 
impact of President Donald Trump's tariffs and other policy changes on the 
economy and prices.

   Inflation has been cooling since January, and many economists say that 
without the higher import taxes, the Fed would likely be cutting its rate 
further. According to the Fed's preferred measure, inflation dropped to just 
2.1% in April, the lowest since last September. Core inflation -- which exclude 
the volatile food and energy categories -- was 2.5%.

   Those figures suggest inflation is largely coming under control, for now. 
Yet the Fed's short-term interest rate remains at an elevated level intended to 
slow growth and inflation. Some economists argue that with inflation cooling, 
the Fed could resume its rate reductions.

   When the Fed reduces its rate, it often -- though not always -- leads to 
lower costs for consumer and business borrowing, including for mortgages, auto 
loans, and credit cards. Yet financial markets also influence the level of 
longer-term rates and can keep them elevated even if the Fed reduces the 
shorter-term rate it controls.

   But Fed officials have said they want to see whether Trump's tariffs boost 
inflation and for how long. Economists generally believe a tariff hike should 
at least lead to a one-time increase in prices, as companies seek to offset the 
cost of higher duties. Many Fed officials, however, are worried that the 
tariffs could lead to more sustained inflation.

   "While theory might suggest that (the Fed) should look through a one-time 
increase in prices, I would be uncomfortable staking the Fed's reputation and 
credibility on theory," Jeffrey Schmid, president of the Fed's Kansas City 
branch and a voting member of the Fed's interest-rate setting committee, said 
earlier this month.

   The Trump White House has sharply ramped up pressure on Powell to reduce 
borrowing costs, with Trump himself calling the Fed chair a "numbskull" last 
week for not cutting. Other officials, including Vice President JD Vance and 
Commerce Secretary Howard Lutnick, are also calling for a rate reduction.

   Pushing the Fed to cut rates simply to save the government on its interest 
payments typically raises alarms among economists, because it would threaten 
the Fed's congressional mandate to focus on stable prices and maximum 
employment.

   One of Trump's complaints is that the Fed isn't cutting rates even as other 
central banks around the world have reduced their borrowing costs, including in 
Europe, Canada, and the U.K. On Tuesday, the Bank of Japan kept its key 
short-term rate unchanged at 0.5%, after actually raising it recently.

   But the European Central Bank, Bank of Canada, and Bank of England have 
reduced their rates this year in part because U.S. tariffs are weakening their 
economies. So far the U.S. economy is mostly solid, with the unemployment rate 
low.

   The Bank of England has cut its rate twice this year but is expected to keep 
it unchanged at 4.25% when it meets Thursday.