Federal Reserve sees some progress on inflation but envisions just one rate cut this year

WASHINGTON (AP) — Federal Reserve officials said Wednesday that inflation has fallen further toward their target level in recent months but signaled that they expect to cut their benchmark interest rate just once this year.

The policymakers’ forecast for one rate cut was down from their previous projection of three cuts, because inflation, despite having cooled in the past two months, remains persistently above their target level.

The scaled-back estimate for rate cuts came as something of a surprise, given that the government reported earlier Wednesday that consumer inflation eased in May more than most economists had expected. That report suggested that the Fed’s high-rate polices are succeeding in taming inflation.

Financial markets took encouragement, though, from the policy statement the Fed issued after its latest meeting ended, which underscored that it sees progress in its fight against high inflation. Broad stock indexes rose sharply, and bond yields fell in response.

The policymakers, as expected, kept their key rate unchanged Wednesday at roughly 5.3%. The benchmark rate has remained at that level since July of last year, after the Fed raised it 11 times to try to slow borrowing and spending and cool inflation.

Whenever the Fed does begin to reduce its benchmark rate, now at a 23-year high, it would eventually lighten loan costs for consumers, who have faced punishingly high rates for mortgages, auto loans, credit cards and other forms of borrowing.

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