When the Fed considers cutting interest rates, what does the central bank look at?

The Federal Reserve's June meeting will consider interest rates, again, as the central bank weighs the effect of stubborn inflation that has made life, generally, more expensive for Americans. The benchmark rate that banks charge each other to loan money sits at 5.25% - 5.5%. It's designed to make borrowing more expensive and cool demand in the economy. 

The bank will consider several data points in its decision. First, jobs. Rate hikes were expected to result in job losses because it would be more expensive for businesses to operate. The Labor Department's May jobs report of 297,000 new positions was a mixed bag. While certainly good news for people who are getting a paycheck, but most of those positions were part-time. Unemployment, meantime, ticked-up to 4%, but still remains historically low. 

Understandably, the Fed will spend a lot of time looking at what we do with our money. Ours is a consumer-driven economy, where $7 out of every $10 comes directly from our pockets. Consequently, they'll look at retail sales. The last two readings on this have been unchanged. There's also a report that looks at consumer sentiment: how we feel about things. Generally, we feel 'OK', but notably below a 10-year median line that they keep track of. 

Next, the central bank will look at what's going on with real estate, because buying a home is, typically, the biggest purchase a lot of people will make. This particular sector is still getting a kick in the pants. Mortgage rates remain around 7 percent right now, and home sales are just over half of what they were at their peak in 2005. In part, that's because inventory is low, as people don't want to move and let go of the sweet deal they may already have, which pushes prices higher for the homes that are on the market.

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 It all leads to the two primary indicators of how the economy is performing. Gross Domestic Product, or GDP, is the value of the nation's goods and services, and it measures economic output. It is slowing. Last year, it was at 4.9%, annually, and has fallen to 1.3%, now. Then there is inflation, the reason the Fed started raising interest rates. Most recently it stood at 3.4%, down from the high of 9% in 2022, but still above the Fed's target of 2%. 

Experts say, for now, the economy is just doing OK. "There's no reason to cut rates, right now, because there's not enough evidence that inflation is moderating as fast as they would like it to," says Houston financial strategist Lance Roberts, "But there's also no conversation that the Fed will need to hike rates."

 There is no expectation of a rate cut when the Fed concludes its latest meeting. While the next opportunities would come at the Fed meetings in July and September, prevailing wisdom suggests they'll wait till November, at the earliest, so there's no appearance of it affecting the election.