Live Updates: Fed Holds Rates, Noting 'Lack of Further Progress' on Inflation

Here are a few key takeaways from Powell's press conference.

• The Fed still thinks that its next move will be a rate cut, and Powell clearly said that further rate increases are "unlikely."

• Still, it is not clear how much the Fed will manage to cut rates this year. Inflation is cooling more slowly than officials had expected.

• Powell avoided commenting on whether three rate cuts are still possible this year: That was the Fed's forecast as of March, but investors now expect fewer reductions.

• Powell said that he thinks that the current rate setting is weighing on the economy, and that it will continue to do so over time.

• The upshot? We may be headed for a longer period of high rates. For consumers, that means mortgages and credit card rates could stay pricey for a while.

May 1, 2024, 3:21 p.m. ET

And that is a wrap. Chair Powell has concluded his news conference.

May 1, 2024, 3:18 p.m. ET

For investors at least, it seems the main question they had coming into this meeting has been answered. They knew interest rates weren't going to start falling anytime soon. It appears there is relief that Powell has been clear that he does not think they will increase, either. The S&P 500 is now treading water at around 1 percent higher for the day.

May 1, 2024, 3:12 p.m. ET

One point Powell has clearly tried to emphasize in this press conference is that the Fed has made a lot of progress, even if that progress has slowed recently. Inflation has come way down, the job market has come into better balance, and overall demand has cooled.

May 1, 2024, 3:14 p.m. ET

Meanwhile, the strength of the economy means that the Fed can afford to be patient, he says. If the economy starts to lose momentum, the Fed has time to react.

May 1, 2024, 3:08 p.m. ET

Bond yields are falling and that is helping stocks rally. The two-year Treasury yield is now 0.1 percent lower for the day, on course for its biggest move lower in three months. The S&P 500 is over 1 percent higher.

May 1, 2024, 3:04 p.m. ET

Powell is asked whether this being an election year raises the bar for rate changes. "We're always going to do what we think the right hing for the economy is. We're not looking at anything else," he said. "We're at peace with that."

May 1, 2024, 3:08 p.m. ET

Many Fed watchers have suggested that policymakers would be reluctant to cut rates right before the election lest they appear to be trying to help Biden. But, as he has before, he rejects that idea. "It's hard enough to get the economics right," he says, adding, "If you go down that road when do you stop?"

May 1, 2024, 3:03 p.m. ET

The questions in this news conference have been split about evenly between whether rates should be higher or lower. But Powell keeps making clear that's not where the Fed is: Officials are much more focused on the question of when to cut.

May 1, 2024, 2:59 p.m. ET

Powell pushes back forcefully against the idea that the economy is running the risk of "stagflation." Inflation has fallen, growth is still strong and unemployment is low, he says. "I don't see the stag or the flation," he says.

May 1, 2024, 2:59 p.m. ET

Republicans have recently been raising the specter of "stagflation" in attacks on Biden; Powell is having none of that here.

May 1, 2024, 3:01 p.m. ET

The "stagflation" narrative frankly doesn't make much sense. The risk right now is that the Fed is failing to cool off the economy, and that it will have to get more aggressive to tame inflation. That's a real concern, but it's nothing at all like the "stagflation" of the 1970s.

May 1, 2024, 2:56 p.m. ET

The Fed is keeping rates high, but is simultaneously slowing the roll-off of its bond holdings. On the surface, those two policies might seem to be at cross-purposes. But Powell pushes back against that idea, saying the bond policy isn't an effort to stimulate the economy but just to avoid disrupting the financial system by reducing its holdings too quickly.

May 1, 2024, 2:52 p.m. ET

Powell is predicting that inflation is still poised to fall, but that he's less confident in that than he used to be. "My expectation is that we will, over the course of this year, see inflation move back down" but "my confidence in that is lower than it was because of the data that we've seen," he says.

May 1, 2024, 2:52 p.m. ET

Powell also makes clear, as he has in prior remarks, that the Fed doesn't target a certain average wage level. Wages can rise faster than prices if production expands, which happened last year. Could that happen again this year? It would be harder, but it's not impossible.

May 1, 2024, 2:51 p.m. ET

Powell dodges an effort to ping him down on when cuts might come, and whether it could happen this year. It will be up to the data, he says.

May 1, 2024, 2:48 p.m. ET

Some economists have suggested that all the talk of rate cuts basically worked against the Fed's efforts to control inflation by leading to a rally in financial markets. But Powell pushes back against the notion that there has been a reacceleration in the economy. "What you see is economic activity at a level that's roughly the same as last year," he says."

May 1, 2024, 2:46 p.m. ET

Investors are really welcoming Powell saying he thinks a rise in interest rates is unlikely, despite some other policymakers saying it could be possible. The S&P 500 is now up 0.9 percent.

May 1, 2024, 2:47 p.m. ET

The two-year Treasury yield, which is sensitive to changes in interest rate expectations, is also falling.

May 1, 2024, 2:44 p.m. ET

That was about as firm a "no" to Jeanna's question as you'll ever get from Powell. He doesn't entirely rule out hikes, but he says explicitly they're unlikely unless the data move in a substantial way.

May 1, 2024, 2:42 p.m. ET

In response to a question by our Jeanna Smialek, Powell said he thinks it's "unlikely" that the next policy rate move will be a hike.

May 1, 2024, 2:41 p.m. ET

Howard Schneider at Reuters leads off the questioning by asking whether interested rates are "sufficiently restrictive." That's code for "Are you thinking about raising rates?"

May 1, 2024, 2:42 p.m. ET

Powell responds by saying he is confident interest rates are cooling down the economy and that he believes they will prove "sufficiently restrictive" over time.

May 1, 2024, 2:41 p.m. ET

Investors appear to be reacting positively to Powell's initial comments, with a mini-rally starting after Powell said that interest rates are already "sufficiently restrictive" to slow the economy and inflation. The S&P 500 is now 0.5 percent higher for the day, having nudged lower prior to Powell's answering reporter's questions.

May 1, 2024, 2:42 p.m. ET

And that move is being exacerbated after Powell said that he thinks a rise in interest rates is "unlikely".

May 1, 2024, 2:39 p.m. ET

Some economists have said recently that interest rates aren't actually high enough to bring down inflation. Powell just disagreed with that assessment.

May 1, 2024, 2:38 p.m. ET

One of the most positive outlooks for employment is the Fed's ability to use rate cuts as an insurance policy. "We are also prepared to respond to an unexpected weakening in the labor market," Powell confirmed.

May 1, 2024, 2:38 p.m. ET

No surprise, but Republicans are blaming the lack of a rate cut on President Biden and his economic policies. "President Biden owns these historically high interest rates, making it harder for Americans to own anything else," Representative Jason Smith of Missouri, the chairman of the Ways and Means Committee, said in a release.

May 1, 2024, 2:37 p.m. ET

That "longer than previously expected" line is not a surprise, but it's the most explicit I've heard Powell be about the need for rates to stay "higher for longer."

May 1, 2024, 2:36 p.m. ET

Powell notes that "readings on inflation have come in above expectations," and gaining greater confidence will "take longer than previously expected."

May 1, 2024, 2:35 p.m. ET

Powell notes that inflation has been higher than expected this year, though he notes that inflation expectations remain pretty stable. Officials watch those to make sure that people aren't going to begin to expect fast price increases and change their behavior accordingly (for instance, asking for big pay gains to cover them, which then feeds further price increases).

May 1, 2024, 2:35 p.m. ET

Powell says that labor demand has remained strong, but has been accompanied by growth in the labor force. That's partly because more Americans are entering the labor force, but also because of immigration, which has increased the supply of workers.

May 1, 2024, 2:33 p.m. ET

Powell notes that inflation "has shown a lack of further progress" in recent months. That echoes the newly added line in the Fed statement.

May 1, 2024, 2:31 p.m. ET

The Fed's "admission that there has been a lack of further progress confirms that imminent rate cuts are extremely unlikely," said Seema Shah, chief global strategist at Principal Asset Management. "A pivot this year will require not just inflation stabilization, but convincing and durable evidence that the disinflation trend is back in play."

May 1, 2024, 2:31 p.m. ET

Powell starts his news conference, saying that "inflation has eased substantially over the past year" and "that's very good news," but noting that further progress in bringing it down is not assured.

May 1, 2024, 2:24 p.m. ET

"There was a little bit of hawkishness in the statement," Gennadiy Goldberg from TD Securities tells me. But he notes that Powell is the main event, and we're really waiting to hear what he says at this point.

May 1, 2024, 2:19 p.m. ET

I had two big questions coming into today: Would the Fed hint it was considering raising rates? And what would it say about how long it would wait before cutting them? The statement arguably answers the first question with a "no." The second question will have to wait for Powell's press conference at 2:30 p.m.

May 1, 2024, 2:22 p.m. ET

Ben, as an enthusiastic viewer of Fed conferences — and an occasional participant — I really enjoy a clever reporter question to Powell. But today, I'd love to see some simple efforts to pin him down on your queries. Are further rate increases on the table? When might a rate cut come? And what, exactly, does the Fed need to see before moving again?

May 1, 2024, 2:22 p.m. ET

I joked earlier that the first question should be, "June?" The second should be, "July?" And the third should be, "September?"

May 1, 2024, 2:17 p.m. ET

Rep. Brendan Boyle, a Pennsylvania Democrat who serves as ranking member on the House Budget Committee, cautioned that sustained high interest borrowing costs were jeopardizing what has been an impressive recovery from the pandemic. "The longer the Fed maintains these elevated interest rates, the greater the risk of harming that economic progress," he wrote in a release.

May 1, 2024, 2:15 p.m. ET

Omair Sharif, founder of Inflation Insights, highlights a small tweak in today's statement: Policymakers now say that the countervailing risks of inflation and unemployment "have moved toward better balance over the past year." Previously, they said the risks were "moving into better balance."

May 1, 2024, 2:15 p.m. ET

"That seems like a small change," Sharif wrote in a note to clients, "but it suggests that the balance of risks is now fairly even and that perhaps there's less concern about future labor market strength being inflationary."

May 1, 2024, 2:17 p.m. ET

He continues: "It seems like the Fed believes that the imbalance, i.e., labor demand exceeding supply, has now run its course. If that's the case, then there's less to fear in terms of future solid labor market reports."

May 1, 2024, 2:06 p.m. ET

The Fed's plan for its balance sheet involved shrinking its holdings of Treasury securities more slowly, while maintaining the current pace of shrinking its mortgage-backed security holdings. The goal here is to end up with a smaller footprint in financial markets, but to pull that off without sending financial markets into a tizzy.

May 1, 2024, 2:05 p.m. ET

Today's decision was unanimous. Many Fed-watchers expect that whenever the central bank does decide to cut rates, there are likely to be dissents.

May 1, 2024, 2:05 p.m. ET

Investors don't seem to quite know what to make of things just yet, with little immediate reaction in both stocks and bonds. The statement suggested that the direction of travel still appears to be towards cuts, but it also cautioned patience, meaning interest rates are likely to still remain higher for longer.

May 1, 2024, 2:03 p.m. ET

It's notable that the Fed added a whole sentence about the recent lack of progress on inflation, rather than just changing a word or two in the statement, as they often will. It underscores how surprised officials have been by the stickiness in price increases.

May 1, 2024, 2:02 p.m. ET

Fed officials left unchanged the "reduce" language I flagged earlier. Suggests they still expect the next rate move to be a cut — although it will almost certainly take longer than expected to get one.

May 1, 2024, 2:02 p.m. ET

No surprises really in any of this news, but it's another reminder of the rising bar for rate cuts in the immediate future. The Fed is going to need to see changes in economic data to get comfortable with cuts.

May 1, 2024, 1:30 p.m. ET

Sky-high mortgage rates and other elevated borrowing costs are pinching American consumers ahead of the 2024 election, threatening President Biden's chances at a second term.

Yet so far, Mr. Biden has not called on the Federal Reserve, which has raised interest rates to their highest levels in more than two decades, to slash those costs.

The White House has repeatedly cited the Fed's independence as the reason that Mr. Biden will not push the Fed to cut interest rates. But some Democrats are now urging the president to jettison that approach. That is because the central bank, which was expected to cut rates early in 2024, is now unlikely to start reducing them anytime soon.

May 1, 2024, 1:00 p.m. ET

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Every major currency in the world has fallen against the U.S. dollar this year, an unusually broad shift with the potential for serious consequences across the global economy.

Two-thirds of the roughly 150 currencies tracked by Bloomberg have weakened against the dollar, whose recent strength stems from a shift in expectations about when and by how much the Federal Reserve may cut its benchmark interest rate, which sits around a 20-year high.

High Fed rates, a response to stubborn inflation, mean that American assets offer better returns than much of the world, and investors need dollars to buy them. In recent months, money has flowed into the United States with a force that's being felt by policymakers, politicians and people from Brussels to Beijing, Toronto to Tokyo.

May 1, 2024, 12:30 p.m. ET

More than two years after the Federal Reserve started lifting interest rates to restrain growth and weigh on inflation, businesses continue to hire, consumers continue to spend and policymakers are questioning why their increases haven't had a more aggressive bite.

The answer probably lies in part in a simple reality: High interest rates are not really pinching Americans who own assets like houses and stocks as much as many economists might have expected.

For many people in middle and upper income groups — especially those who own their homes outright or who locked in cheap mortgages when rates were at rock bottom — this is a fairly sunny economic moment. Their house values are mostly holding up in spite of higher rates, stock indexes are hovering near record highs, and they can make meaningful interest on their savings for the first time in decades.

May 1, 2024, 12:15 p.m. ET

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With stubborn inflation likely to keep interest rates high, another financial boogeyman has come back to scare investors: government debt.

Typically, government debt, especially that issued by the United States, is considered a haven for investors. But the United States has now borrowed so much that Wall Street is worrying about the cost of that debt if interest rates stay high. They are also fretting about who will keep lending to the government as the debt pile continues to grow.

On Monday, the Treasury Department announced that it expected to borrow $243 billion for the three months through June, $41 billion more than it had forecast in January. Much of that new borrowing will come via inflation-protected bonds and shorter-dated bills that mature in under one year, putting upward pressure on the short-dated interest rates the Fed targets.

When the government raised its borrowing needs last summer, it prompted a sharp sell-off in the bond market, lifting market interest rates, raising the cost of borrowing for companies and consumers, and weighing on stock prices.

Those fears subsided toward the end of the year as inflation slowed, giving rise to hopes that interest rates would soon begin to fall. But they did not disappear: With inflation proving stubborn, worries over the Fed keeping rates high for longer have returned, reviving concerns about debt sustainability.

The two-year Treasury yield, which is sensitive to changes in Fed rate expectations, has recently risen back above 5 percent for the first time since October last year, up from just 4.24 percent at the start of the year.

With higher rates comes renewed pressure on the stock market. While the S&P 500 remains roughly 5 percent higher for the year, it has fallen more than 4 percent from its peak at the end of March.

May 1, 2024, 12:00 p.m. ET

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American households who were hoping interest rates would soon decline will have to wait a bit longer.

The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, noting that progress on cooling inflation had stalled.

The central bank has raised its key interest rate to 5.33 percent from near zero in a series of increases between March 2022 and last summer, and they've remained unchanged since then. The goal was to tamp down inflation, which has cooled considerably, but is still higher than the Fed would like, suggesting that interest rates could remain high for longer than previously expected.

For people with money stashed away in higher-yielding savings accounts, a continuation of elevated rates translates into more interest earnings. But for people saddled with high cost credit card debt, or aspiring homeowners who have been sidelined by higher interest rates, a lower-rate environment can't come soon enough.

"U.S. consumers should be prepared to continue to face relatively high interest rates across a range of credit products for a while longer, with any potential rate decreases likely being pushed to later in 2024," said Michele Raneri, vice president of U.S. research and consulting at TransUnion, one of the nation's three largest consumer credit companies.

Here's how different rates are affected by the Fed's decisions — and where they stand.

Credit Cards

Credit card rates are closely linked to the central bank's actions, which means that consumers with revolving debt have seen those rates quickly rise over the past couple of years. Increases usually occur within one or two billing cycles, but don't expect them to fall quite as rapidly even when rates eventually decline.

"The urgency to pay down high-cost credit card or other debt is not diminished," said Greg McBride, chief financial analyst at Bankrate. "Interest rates took the elevator going up, but they're going to take the stairs coming down."

That means that consumers should prioritize repayment of higher-cost debt and take advantage of zero-percent and low-rate balance transfer offers when they can.

The average rate on credit cards with assessed interest was 22.63 percent at the end of March, according to the Federal Reserve, compared with 20.92 percent a year earlier and 16.17 percent at the end of March 2022, when the Fed began its series of rate increases.

Car Loans

Auto loan rates remain elevated, which, coupled with higher car prices, continues to squeeze affordability. But if interest rates won't budge, then automakers and dealerships may have to find ways to incentivize buyers to stoke demand.

"As signs indicate that the Fed isn't ready to cut rates just yet, the burden will shift to automakers to further subsidize interest rates and offer incentives if they want to sustain new vehicle sales," said Joseph Yoon, a consumer insights analyst at Edmunds, an automotive research firm.

"In the used market, dealerships will have to decide if they are comfortable holding onto inventory longer or adjusting pricing down to meet consumers' financial situations," he added.

The average rate on new-car loans was 7.2 percent in March, according to Edmunds, up from 7 percent last March and 4.5 percent in the same month of 2022. Used-car rates were even higher: The average loan carried an 11.9 percent rate in March, up from 11.4 percent in the same month in 2023 and 8.1 percent in 2022.

Car loans tend to track with the yield on the five-year Treasury note, which is influenced by the Fed's key rate — but that's not the only factor that determines how much you'll pay. A borrower's credit history, the type of vehicle, the loan term and the down payment are all baked into that rate calculation.

Mortgages

Mortgage rates have again been on the rise, with the most popular loan crossing the 7 percent mark in recent weeks, making homeownership an even costlier proposition.

The average 30-year mortgage rate was 7.17 percent as of April 25, according to Freddie Mac, compared with 6.43 percent in the same week last year.

It's been a volatile ride. Rates climbed as high as 7.79 percent in late October before dropping about a point lower and stabilizing — at least temporarily.

"Going forward, mortgage rates will likely continue to fluctuate," said Jacob Channel, senior economist at LendingTree, "and it's impossible to say for certain where they'll end up."

Rates on 30-year fixed-rate mortgages don't move in tandem with the Fed's benchmark, but instead generally track with the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations about inflation, the Fed's actions and how investors react.

Other home loans are more closely tethered to the central bank's decisions. Home-equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the Fed's rates. The average rate on a home-equity loan was 8.63 percent as of April 24, according to Bankrate, while the average home-equity line of credit was 9.10 percent.

Student Loans

Borrowers who hold federal student loans are not affected by the Fed's actions because such debt carries a fixed rate set by the government.

But batches of new federal student loans are priced each July based on the 10-year Treasury bond auction in May. And those loan rates have climbed: Borrowers with federal undergraduate loans disbursed after July 1 (and before the upcoming July 1) will pay 5.5 percent, up from 4.99 percent for loans disbursed in the same period a year before. Just three years ago, rates were below 3 percent.

Graduate students taking out federal loans will also pay about half a point more than the rate from a year earlier, or about 7.05 percent on average, as will parents, at 8.05 percent on average.

Borrowers of private student loans have already seen rates climb because of previous rate increases: Both fixed- and variable-rate loans are linked to benchmarks that track the federal funds rate, the Fed's benchmark rate.

Savings Vehicles

Savers tend to benefit when the federal funds rate is higher because many banks will pay more on their savings accounts — particularly if they want to attract more deposits. (Many banks earn money on the difference between their cost of funds, like deposits, and the interest rate they charge on loans.)

And online institutions tend to price their online savings accounts much more competitively than their brick-and-mortar counterparts.

Even though the Fed's benchmark rate has remained unchanged, several online banks have begun to dial back the rates they pay to consumers because they expect the Fed to cut rates at some point this year. Certificates of deposit, which tend to track similarly dated Treasury securities, have already seen their rates drop multiple times this year.

The average one-year C.D. at online banks was 4.94 percent as of April 1, down from its peak yield of 5.35 percent in January, but up from 4.72 percent a year earlier, according to DepositAccounts.com. But you can still find one-year C.D.s with yields of more than 5 percent.

Most online banks have held their savings account rates relatively steady: The average yield on an online savings account was 4.43 percent as of April 1, down only slightly from a peak of 4.49 percent in January, according to DepositAccounts.com, and up from 3.76 percent a year ago. But several major online institutions have cut their rates a bit over the last couple of months — Ally Bank cut its online savings account to 4.25 percent from 4.35 percent, for example, and Marcus, by Goldman Sachs, now pays 4.40 percent, down from 4.50 percent.

Yields on money-market funds offered by brokerage firms are even more alluring because they've tracked the federal funds rate more closely. The yield on the Crane 100 Money Fund Index, which tracks the largest money-market funds, was 5.13 percent on April 30.

May 1, 2024, 11:20 a.m. ET

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The red-hot labor market cooled somewhat in March, government data showed on Wednesday.

Employers had 8.5 million unfilled job openings on the last day of March, the fewest since early 2021, according to data released by the Labor Department. They also filled the fewest jobs in nearly four years, suggesting that employers' seemingly insatiable demand for workers might finally be abating.

A slowing labor market would be welcome news for policymakers at the Federal Reserve, who are concluding a two-day meeting on Wednesday amid signs that inflation is proving difficult to stamp out. Fed officials have said they see falling job openings as a sign that supply and demand are coming into better balance.

For workers, however, that rebalancing could mean a loss of the bargaining power that has brought them strong wage gains in recent years. The number of workers voluntarily quitting their jobs fell to 3.3 million, the lowest level in more than three years and a far cry from the more than four million a month who were leaving their jobs at the peak of the "great resignation" in 2022.

"This continued moderation is largely positive for the market and the economy overall, and is mostly sustainable for the time being," Nick Bunker, economic research director for the Indeed Hiring Lab, wrote in a note on Wednesday. But, he added, "if job openings continue to decline for much longer, hiring of unemployed workers will eventually retreat enough to drive unemployment up."

There is little sign of that so far, however. Despite high-profile job cuts at a few large companies, layoffs remain low overall, and fell in March. And while job openings have fallen, there are still about 1.3 available positions for every unemployed worker. Data released by the Labor Department on Tuesday showed that wage growth picked up in the first three months of the year, suggesting workers retain some leverage.

The data released Wednesday came from the Labor Department's monthly survey of job openings and labor turnover. Economists will get a more timely snapshot of the labor market on Friday, when the government releases its monthly jobs report.

Forecasters expect that data to show that employers added about 240,000 jobs in April and that the unemployment rate remained below 4 percent for the 27th consecutive month.

May 1, 2024, 5:03 a.m. ET

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Federal Reserve officials are fiercely protective of their separation from politics, but the presidential election is putting the institution on a crash course with partisan wrangling.

Fed officials set policy independently of the White House, meaning that while presidents can push for lower interest rates, they cannot force central bankers to cut borrowing costs. Congress oversees the Fed, but it, too, lacks power to directly influence rate decisions.

There's a reason for that separation. Incumbent politicians generally want low interest rates, which help to stoke economic growth by making borrowing cheap. But the Fed uses higher interest rates to keep inflation slow and steady — and if politicians forced to keep rates low and goose the economy all the time, it could allow those price increases to rocket out of control.

In light of the Fed's independence, presidents have largely avoided talking about central bank policy at all ever since the early 1990s. Pressuring officials for lower rates was unlikely to help, administrations reasoned, and could backfire by prodding policymakers to keep rates higher for longer to prove that they were independent from the White House.

But Donald J. Trump upended that norm when he was president. He called Fed officials "boneheads" and implied that Jerome H. Powell, the Fed chair, was an "enemy" of America for keeping rates too high. And he has already talked about the Fed in political terms as he campaigns as the presumptive Republican nominee, suggesting that cutting interest rates before November would be a ploy to help President Biden win a second term.

Some of Mr. Trump's allies outside his campaign have proposed that the Fed's regulatory functions should be subject to White House review. Mr. Trump has also said he intends to bring all "independent agencies" under White House control, although he and his campaign have not specifically addressed directing the Fed's decisions on interest rates.

Direct White House input into Fed policy seems "far-fetched," said Gabriel Chodorow-Reich, an economics professor at Harvard. But he noted that administrations could chip away at the central bank's independence in more subtle ways, including through whom they choose to nominate to key Fed positions (Mr. Powell's term as chair expires in May 2026) and through extended pressure campaigns.

"There are elements of this that could happen that are not immediately cataclysmic, but over time, by reducing the Fed's independence, they make it more difficult" for the Fed to make hard decisions like raising rates to slow the economy, Mr. Chodorow-Reich said.

And in the near term, the reality that the Fed seems likely to remain a political topic headed into the election has some economists wondering whether central bankers would feel comfortable starting to cut interest rates at their September or November meeting, even if inflation cools enough for them to do so. Making a move right before the election could draw even more attention to the Fed.

But some economists think that officials will still cut rates late this year if that's what is warranted, regardless of the political backlash that could result.

"My guess is that ceteris paribus, they'd like to stay away from right on top of the election," said Donald Kohn, a former Fed vice chair who is now at the Brookings Institution, referring to the Latin phrase meaning that all else is held equal. "Other things won't be equal. The incoming data will be the main factor governing when they cut interest rates."