President Biden and his aides have already given up any expectation that the Federal Reserve could cut interest rates several times before the November election.
But their hopes of at least one pre-election cut appeared to be helped on Wednesday, when the Consumer Price Index showed unexpected progress in the fight to tame inflation.
Prices are still growing faster than the central bank would like. After falling steadily through 2023, the national inflation rate spent the start of the year stalled at a level that is still hotter than the Fed’s target.
But new data released on Wednesday morning showed price growth cooled slightly in May, data that cheered markets and set off a new round of Mr. Biden’s allies calling for the Fed to commence cutting rates.
“Today’s release was welcome news that inflation is cooling, and data last week showed a stable and strong job market. Now it’s time to make sure the benefit of that is reaching American families,” Senator Martin Heinrich of New Mexico, a Democrat and the chair of the Joint Economic Committee, said in a release.
“The Fed has made it clear that it isn’t ready to lower interest rates,” he added. “But unnecessarily high rates are holding back small business growth, hurting workers, and worsening the housing crisis. It is time for the Fed to lower interest rates before it causes irreparable harm to the U.S. economy.”
Few investors or economists expect Fed officials to cut interest rates on Wednesday from their current range of 5.25 to 5.5 percent. But markets are now more confident that a rate cut could come in September if inflation continues to moderate.
The Fed will provide more information on its rate plans at 2 p.m., when it releases its latest expectations for where it sees interest rates winding up at the end of 2024 and beyond.
Any cuts ahead of the election could be good news for Mr. Biden, whose economic approval ratings have suffered under consumers’ distaste for the first prolonged bout of high price growth this century, along with the highest borrowing costs in more than two decades.
The Fed is independent of the White House, but that hasn’t stopped administration officials from saying privately that Mr. Biden could benefit economically and politically from rate cuts. Those cuts would help drive down borrowing costs for people buying homes and cars, along with signaling to voters that the Fed is no longer concerned with a resurgence of inflation.
Many of Mr. Biden’s allies in Congress have begun calling on Fed officials to start cutting rates now, warning of threats to economic growth and to families trying to buy or otherwise afford homes if rates stay high.
Even before the inflation release on Wednesday, Democratic lawmakers like Senator Sheldon Whitehouse of Rhode Island, who is chairman of the Budget Committee, and Representative Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, were calling for immediate cuts.
Fed officials have shown no sign of being swayed by those pleas. Mr. Biden has resisted pressure from some progressives to call on the Fed to cut rates, citing the importance of the central bank’s independence.