The rate rose to 6.83% from 6.62% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.1%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose. The average rate increased to 6.03% from 5.82% last week. It’s still down from 6.39% a year ago, Freddie Mac said.

Mortgage rates are influenced by several factors, including global demand for U.S. Treasurys, the Federal Reserve’s interest rate policy decisions and bond market investors’ expectations for future inflation.

The average rate on a 30-year mortgage loosely follows moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

The yield, which had mostly fallen this year after climbing to around 4.8% in mid-January, spiked last week to 4.5% amid a sell-off in government bonds triggered by investor anxiety over the potential fallout from the Trump administration’s escalating tariff war.

The 10-year Treasury yield was at 4.32% in midday trading Thursday.

When mortgage rates rise, they reduce homebuyers’ purchasing power.

The average rate on a 30-year mortgage had mostly trended lower since reaching just over 7% in mid-January. This week’s increase is the first after three straight declines and brings the average rate to its highest level since Feb. 20, when it was 6.85%.

The increase in mortgage rates may put off some would-be homebuyers during what’s traditionally the busiest period of the year for home sales. Last week, mortgage applications fell 8.5% from a week earlier, according to the Mortgage Bankers Association.

At the same time, the share of applications for adjustable-rate mortgages, or ARMs, climbed to its highest level in 17 months. ARMs lower a borrower’s mortgage payment by reducing the interest rate on a mortgage for a preset number of years before it adjusts to a higher rate.

Earlier this year, forecasts by housing economists generally called for the average rate on a 30-year mortgage to remain around 6.5% this year.

“Looking forward, competing economic forces are pulling mortgage rates in opposite directions, making it increasingly difficult to predict where they’ll land,” said Jiayi Xu, an economist at Realtor.com. “For buyers, the smartest move is to stress-test their budgets across a range of possible rate scenarios to stay prepared—no matter which way the winds shift.

The U.S. housing market has been in a sales slump since 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes fell last year to their lowest level in nearly 30 years.

Easing mortgage rates and more homes on the market nationally helped drive sales higher in February from the previous month, though they were down year-over-year.

Home shoppers who can afford to buy at current mortgage rates may benefit from more buyer-friendly trends this spring homebuying season, including a sharp increase in home listings and lower asking prices in some metro areas.

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The number of Americans filing for jobless benefits rose by 5,000 to 219,000 for the week ending Feb. 15, the Labor Department said Thursday. Analysts projected that 215,000 new applications would be filed.

Weekly applications for jobless benefits are considered a proxy for layoffs.

The four-week average, which evens out some of the week-to-week volatility, fell by 1,000 to 215,250.

Some analysts say they expect layoffs ordered by the Department of Government Efficiency to show up in the report in the coming weeks.

Despite showing some signs of weakening during the past year, the labor market remains healthy with plentiful jobs and relatively few layoffs.

Earlier this month, the Labor Department reported that U.S. employers added 143,000 jobs in January, significantly fewer than December’s 256,000 job gains. However, the unemployment rate ticked down to an even 4%, signaling a still very healthy labor market.

Late in January, the Federal Reserve left its benchmark lending rate alone after issuing three cuts late in 2024. Fed officials are closely monitoring inflation and the labor market for signs of a potentially weakening economy. They expect only two rate cuts this year, down from previous projections of four.

Last week’s consumer prices report that showed that inflation accelerated last month, creating some doubt about whether the Fed will be moved to cut rates at all this year.

The consumer price index increased 3% in January from a year ago, up from a 3 1/2 year low of 2.4% in September. The new data shows that inflation has remained stubbornly above the Fed’s 2% target for roughly the past six months after it fell steadily for about a year and a half.

Overall, while layoffs remain low by historical standards, some high-profile companies have announced job cuts already this year.

Workday, Dow, CNN, Starbucks, Southwest Airlines and Facebook parent company Meta have all trimmed their workforces already in 2025.

Late in 2024, GM, Boeing, Cargill and Stellantis announced layoffs.

The total number of Americans receiving unemployment benefits for the week of Feb. 8 rose to 1.87 million, an increase of 24,000 from the previous week.

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We can get the national analysis out of the way: There was a higher than expected increase in the employment numbers (275,000) while the even higher initially released January numbers were revised downwards to more reasonable levels (229,000). Yes, the unemployment rate did increase from 3.7% to 3.9%, but that was due to healthy employment growth being outpaced by an even larger increase in the labor force.

Since then, the inflation numbers have also been published, and while they did not improve further and by the magnitude we’d hoped for, the U.S. economy continues to be on a path for a soft landing (reducing inflation rates to 2% without creating a recession).

This is important, because the Federal Reserve would be less likely to lower interest rates during summer if the job market was as hot as initially estimated and inflation remains sticky above the 2% target. The central bank left interest rates unchanged after its meeting last week, but indicated it is close to start lowering the interest rates as policy makers become confident that “it will be appropriate to dial back.” Chairman Jerome Powell said they were “not far from it.” As the UCLA Anderson Forecast put it in its most recent report, we are on a path to normalcy.

Now let us focus on our state and region. For the Riverside-San Bernardino-Ontario Metropolitan Statistical Area, some of the annual revisions were substantial. In the Inland Empire, the Logistics industry lost significantly more jobs (some 5,000 depending on which month you focus on) since last summer than originally assumed and shows a steeper downward trend. On the other hand, Education and Health Services has gained more jobs than previously thought, roughly 10,000 more and the numbers are trending upward, confirming it as the sector with the largest share of labor in the Inland Empire.

The headline news for the Inland Empire is that the unemployment rate jumped up by half percentage points, increasing significantly from 5.0% to 5.5%. Since the Inland Empire’s economy is often described as “first in, last out,” shall we take this as the first sign of the national economy tanking after all, resulting in a “hard landing” (decrease in inflation coinciding with a recession)?

The initially bleak picture is simply an artifact of the data, generated by regularly occurring seasonal patterns. Without getting too technical, we will try to convince you that you should look at seasonally adjusted data rather than the raw data from the EDD. While for some months the difference is negligible, in January it is particularly high, since there are layoffs every year due to the post-holiday season. It is not surprising that the largest raw data (non-seasonally adjusted) employment losses for the Inland Empire came in Retail Trade, Logistics, and Leisure and Hospitality. Filtering out these effects is important since they give a misleading picture of the underlying economy. Total employment reported did not go down 32,300 (which would represent an alarming 2%); instead, it went up by 4,850.

The increase in employment reported by households (+9,100) aligned with the increase in establishment employment (+4,850). Residency measured employment increased by more than what establishments reported. This is probably due to commuters, most of whom work in the coastal areas. The employment status of these commuters is reported by households in the region, not by establishments. This means that significant job growth among commuters could explain the difference for January.

Let us get more specific. Compared to the bleak picture painted by the raw establishment data (decreases of -8,200 in Retail Trade, -7,400 in Logistics, -6,500 in Professional and Business Services, and -3,700 in Leisure and Hospitality), the numbers we get after accounting for seasonal patterns are more positive. The biggest decrease was seen in Professional and Business Services (almost -1,200), at only roughly a fifth of what non-seasonally adjusted data indicated. For Retail Trade (-500), Logistics (+250), and Leisure and Hospitality (-700) numbers also look less worrisome. Bottom line: Do not make major decisions based on non-seasonally adjusted data.

Applying standard statistical techniques to remove seasonal regularities results in the (seasonally adjusted) unemployment rate actually falling by 0.1 percentage points from 5.7% to 5.6% in the Inland Empire.

The change came in the healthiest way possible: through a simultaneous increase in employment and labor force, the former outpacing the latter (+9,100 and +6,200, respectively). After six consecutive months of increases in the civilian unemployment rate, this is encouraging. The result holds despite the fact we only observed significant employment increases during three months in 2023.

The Inland Empire will need more time to recover from the very concerning decreases of 12,800 for the labor force and 13,600 for employment observed between November and December. Despite this, the Inland Empire continues to be the poster child of the economic recovery from the COVID-19 recession,. While we will continue to see some structural adjustment between the industries of the region, we are on a positive path as far as the economy is concerned.

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WASHINGTON (AP) — Federal Reserve officials acknowledged at their most recent meeting in January that there had been “significant progress” in reducing U.S. inflation. But some of the policymakers expressed concern that strong growth in spending and hiring could disrupt that progress.

In minutes from the Jan. 30-31 meeting released Wednesday, most Fed officials also said they were worried about moving too fast to cut their benchmark interest rate before it was clear that inflation was sustainably returning to their 2% target. Only “a couple” were worried about the opposite risk — that the Fed might keep rates too high for too long and cause the economy to significantly weaken or even slip into a recession.

Some officials “noted the risk that progress toward price stability could stall, particularly if aggregate demand strengthened” or that the progress in improving supply chains could falter.

Officials also cited the disruptions in Red Sea shipping, stemming from the conflict in the Middle East, as a trend that could accelerate prices.

The sentiments expressed in Wednesday’s minutes help explain the Fed’s decision last month to signal that its policymakers would need more confidence that inflation was in check before cutting their key rate. At the January meeting, the Fed decided to keep its key rate unchanged at about 5.4%, the highest level in 22 years, after 11 rate hikes beginning in March 2022.

At a news conference after the meeting, Chair Jerome Powell disappointed Wall Street by indicating that the Fed was not inclined to cut rates at its next meeting in March, as some investors and economists had hoped. Rate cuts by the Fed typically lower a wide range of borrowing costs, including for homes, cars and credit card purchases, as well as for business loans.

The Fed’s aggressive streak of rate hikes was intended to defeat spiking inflation. Consumer prices jumped 9.1% in June 2022 from a year earlier — a four-decade high — before falling to 3.1% in January.

Several Fed officials have said in recent speeches that they were optimistic that inflation would continue to slow. In December, the officials projected that they would cut their rate three times this year, though they have said little about when such cuts could begin. Most economists expect the first reduction in May or June.

A shift toward rate cuts could put the Fed under scrutiny in this year’s presidential race, with the likely Republican nominee, Donald Trump, declaring that if he won the election, he wouldn’t reappoint Powell when his term as chair expires in 2026. Trump has called Powell “political” for considering rate cuts that Trump said could benefit President Joe Biden and other Democrats. Powell was first nominated to be Fed chair by Trump in 2017.

Since January’s meeting, there have been signs that inflation may take longer to return sustainably to the Fed’s target than many economists had expected. A gauge of consumer prices that excludes volatile food and energy costs rose much more than expected in January. And a measure of wholesale prices also picked up in January after several months of nearly flat or declining readings.

Some Fed officials who have spoken since those reports were released have reiterated their view that inflation is still steadily declining. But they have added that upcoming economic reports will be critical in determining the Fed’s next moves.

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WASHINGTON (AP) — Chair Jerome Powell will enter this week’s Federal Reserve meeting in a much more desirable position than he likely ever expected: Inflation is getting close to the Fed’s target rate, the economy is still growing at a healthy pace, consumers keep spending and the unemployment rate is near a half-century low.

A year ago, most economists had envisioned a much darker outlook. As the Fed raised interest rates at the fastest pace in four decades to fight high inflation, most economists warned of a recession, possibly a painful one, with waves of layoffs and rising unemployment. Even the Fed’s own economists had projected that the economy would sink into a recession in 2023.

The unexpectedly rosy picture — one that’s sure to be subject to heated debate in the 2024 presidential race — may have left some Fed officials saddled by uncertainty. With their frameworks for assessing the economy upended by the pandemic and its aftermath, it’s hard to know whether the economy’s healthy conditions can endure.

“It almost feels like what we saw in the second half of last year was too good to be true,” said Nathan Sheets, chief global economist at Citi and a former Fed economist. “When things are too good to be true, you want to try to scratch the surface and say, how durable is this?”

Some Fed officials have raised similar questions and expressed caution about their next moves. When they last met in December, the Fed’s 19 policymakers who participate in interest-rate decisions said they expected to cut their benchmark rate three times this year. Yet the timing of those rate cuts, which would lead to lower borrowing costs for consumers and businesses, remains uncertain.

Most economists say they expect the first rate cut to occur in May or June, though a cut at the Fed’s March meeting is not off the table. The timing of rate cuts will almost certainly be the top issue at the Fed’s two-day meeting, which ends Wednesday. The Fed is all but sure to announce after the meeting that it’s leaving its key rate unchanged at about 5.4%, where it’s stood since July, its highest point in 22 years.

The Fed’s consideration of rate cuts is taking place against an intensifying presidential campaign as President Joe Biden seeks re-election with the economy a polarizing issue. Rate cuts have the potential to provoke an attack from former President Donald Trump, who nominated Powell to be Fed chair but later publicly assailed him for raising rates during the Trump presidency and demanded that he lower them. Trump might view any Fed rate cuts carried out this year as aiding Biden’s prospects in November.

At a news conference last month, Powell said: “We don’t think about politics. We think about what’s the right thing to do for the economy.”

On Wednesday, the Fed’s policymakers could signal that they’re close to cutting rates by adjusting the language in the statement they issue after each meeting. In December, the statement still suggested that the officials were willing to consider more rate increases. Removing or altering that language in this week’s statement would signal that they’re shifting to a new approach, focused on rate cuts.

The Fed’s aggressive streak of 11 rate hikes, beginning in March 2022, was intended to tame inflation, which peaked in June 2022 — according to the central bank’s preferred gauge — at 7.1%. But data released Friday showed that over the past six months, inflation has fallen all the way back to the Fed’s 2% annual target level. In the past three months, year-over-over inflation that excludes volatile food and energy costs has dropped to just 1.5%.

Yet Fed officials are expected to wait for at least a few months, to try to build confidence that inflation has been truly beaten, before they start reducing rates.

Christopher Waller, an influential member of the Fed’s governing board, sounded a note of caution in a recent speech.

“Inflation of 2% is our goal,” he said. “But that goal cannot be achieved for just a moment in time. It must be sustained.”

Waller has previously referred to having been “head-faked” on inflation. On more than one occasion, when initial government reports had indicated that inflation was falling, subsequent revisions to the data showed that price increases actually remained high. In his speech, Waller mentioned the government’s upcoming revisions of inflation data, to be released on Feb. 9, as a report he will be watching closely.

It’s possible that inflation could stay undesirably high, especially if the economy remains strong, which could cause the Fed to leave rates unchanged. Fed officials have said that as long as the economy stays healthy, they can take time before cutting rates.

Average paychecks are still increasing at about 4% to 4.5% annually, and apartment rental prices are still rising faster than they did before the pandemic. Officials expect rent prices to cool as a slew of new apartment buildings are completed. But that has yet to show up in the official data. And some prices in the service sector, such as for restaurant meals, are still accelerating.

“We would argue we’re not out of the woods yet,” said Tiffany Wilding, a managing director and economist at PIMCO. “The Fed does not want to be Arthur Burns,” she added, referring to the Fed chair from the 1970s who is widely blamed for cutting rates too soon and allowing inflation to become more deeply entrenched in the economy.

At the same time, the Fed is grappling with an equivalent risk in the other direction: That it might keep its key rate too high for too long and potentially trigger a recession. Consumers spent at a healthy pace in the final three months of last year, but they could eventually pull back in the face of higher borrowing costs and prices that are still well above where they were three years ago.

“They run the risk of overstaying their welcome at high rates and slowing the economy down in a way that really isn’t necessary,” said Bill English, a finance professor at the Yale School of Management and a former Fed economist.

Still, the Fed could also accelerate its rate cuts later this year if the economy does weaken, just as it rapidly raised rates after waiting too long to start boosting them in 2022, said Claudia Sahm, founder of Sahm Consulting and a former Fed economist.

“I fully expect them to wait as long as humanly possible to cut rates,” she said. “The Fed excels at being behind the curve.”

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WASHINGTON (AP) — The Federal Reserve kept its key short-term interest rate unchanged Wednesday for a second straight time but left the door open to further rate hikes if inflation pressures should accelerate in the months ahead.

The Fed said in a statement after its latest meeting that it would keep its benchmark rate at about 5.4%, its highest level in 22 years. Since launching the most aggressive series of rate hikes in four decades in March 2022 to fight inflation, the Fed has pulled back and has now raised rates only once since May.

The latest statement noted that recent tumult in the financial markets has sent longer-term interest rates up to near 16-year highs and contributed to higher borrowing rates across the economy.

“Tighter financial and credit conditions for households and businesses,” it said, “are likely to weigh on economic activity.”

That reference echoed recent comments by Fed officials that higher yields — or interest rates — on the 10-year Treasury note could impose a dampening impact on the economy, cool inflation and substitute for an additional rate hike by the Fed.

Speaking at a news conference, Chair Jerome Powell suggested that the surge in longer-term interest rates will slow the economy if those higher rates stay high for a prolonged period. But he cautioned that the Fed isn’t yet confident that its own benchmark rate is high enough to reduce growth over time.

The Fed chair said the central bank’s policymakers recognize that the effects of their rate hikes have yet to be fully felt in the economy and that they want to take time to assess the impact.

“Slowing down” the rate hikes, Powell said, “is giving us a better sense of how much more we need to do, if we need to do more.”

At the same time, the Fed chair expressed confidence that inflation, despite some signs of persistence in the most recent monthly data, is still heading lower even as the economy has kept growing.

“The good news is we’re making progress,” Powell said. “The progress is going to come in lumps and be bumpy, but we are making progress.”

Long-term Treasury yields have soared since July, the last time the Fed raised rates, swelling the costs of auto loans, credit card borrowing and many forms of business loans. Nationally, the average long-term fixed mortgage rate is nearing 8%, its highest level in 23 years.

Economists at Wall Street banks have estimated that sharp losses in the stock market and higher bond yields could have a depressive effect on the economy equal to the impact of three or four quarter-point rate hikes by the Fed.

Those tighter credit conditions, though, have yet to cool the economy or slow hiring as much as the Fed had expected. Growth soared at a 4.9% annual pace in the July-September quarter, powered by robust consumer spending, and hiring in September was strong. On Wednesday, the government said employers posted a sizable 9.6 million job openings last month, well below the peak of early last year but still sharply above pre-pandemic levels.

Consumer inflation has dropped from a year-over-year peak of 9.1% in June 2022 to 3.7% last month. But recent data suggests that inflation remains persistently above the Fed’s 2% target.

Powell and other Fed officials have responded to the surprising evidence of economic strength by saying the Fed will monitor incoming data for any hints that inflation will either further subside or remain chronically above its target level. In the meantime, most Fed watchers expect the central bank to keep rates unchanged in December as well.

Market analysts say an array of factors have combined to force up long-term Treasury yields and couple with the Fed’s short-term rate hikes to make borrowing costlier for consumers and businesses. For one thing, the government is expected to sell potentially trillions of dollars more in bonds in the coming years to finance huge budget deficits even as the Fed is shrinking its holdings of bonds. As a result, higher Treasury rates may be needed to attract more buyers.

And with the future path of rates murkier than usual, investors are demanding higher yields in return for the greater risk of holding longer-term bonds.

What’s important for the Fed is that the yield on the 10-year Treasury has continued to zoom higher even without rate hikes by the central bank. That suggests that Treasury yields may stay high even if the Fed keeps its own benchmark rate on hold, helping keep a lid on economic growth and inflation.

Other major central banks have also been dialing back their rates hikes with their inflation measures having appeared to improve. The European Central Bank kept its benchmark rate unchanged last week, and last month inflation in the 20 countries that use the euro fell to 2.9%, its lowest level in more than two years.

The Bank of England also kept its key rate unchanged in September. The Bank of Japan, meanwhile, is inching toward higher borrowing costs, as it loosens control on longer-term rates.

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WASHINGTON (AP) — Most Federal Reserve officials last month still regarded high inflation as an ongoing threat that could require further interest rate increases, according to the minutes of their July 25-26 meeting released Wednesday.

At the same time, the officials saw “a number of tentative signs that inflation pressures could be abating.” It was a mixed view that echoed Chair Jerome Powell’s noncommittal stance about future rate hikes at a news conference after the meeting.

According to the minutes, the Fed’s policymakers also said that despite signs of progress on inflation, it remained well above their 2% target. They “would need to see more data … to be confident that inflation pressures were abating” and on track to return to their target.

At the meeting, the Fed decided to raise its benchmark rate for the 11th time in 17 months in its ongoing drive to curb inflation. But in a statement after the meeting, it provided little guidance about when — or whether — it might raise rates again.

Most investors and economists have said they believe July’s rate hike will be the last. Earlier this week, economists at Goldman Sachs projected that the Fed will actually start to cut rates by the middle of next year.

Since last month’s Fed meeting, more data has pointed in the direction of a “soft landing,” in which the economy would slow enough to reduce inflation toward the central bank’s 2% target without falling into a deep recession. The Fed has raised its key rate to a 22-year high of about 5.4%.

Inflation has cooled further, according to the latest readings of “core” prices, a category that excludes volatile food and energy costs. Core prices rose 4.7% in July a year earlier, the smallest such increase since October 2021. Fed officials closely track core prices, which they believe provide a better read on underlying inflation.

Overall consumer prices rose 3.2% in July compared with a year earlier, above the previous month’s year-over-year pace because of higher gas and food costs. Still, that is far below the peak inflation rate of 9.1% in June 2022.

That progress has been made without the sharp increase in unemployment that many economists had expected would follow the Fed’s sharp series of interest rate hikes, the fastest in four decades. The unemployment rate actually ticked down to 3.5% in July, near the lowest level in a half-century.

Hiring has slowed, however, with employers having added 187,000 jobs in July, a solid gain but roughly one-third of the pace of monthly job growth earlier this year.

Still, the Fed now faces upticks in gas and some food prices, which could keep overall inflation from falling much further in the coming months. And rising costs for services, from auto insurance to restaurant meals to dental services, could keep core inflation persistently high.

In a sign that at least some officials think the Fed is nearing the end of its rate hikes, the minutes said “a number” of policymakers think their benchmark rate is high enough to restrain the economy.

These officials also think the risk of raising rates too high is roughly equal to the risk of not raising them high enough. That marks a significant shift from earlier this year, when the Fed routinely said the main risk was tilted toward not doing enough to slow borrowing and spending.

Data this week suggests that the economy, if anything, is picking up, which could keep inflation sticky at its current elevated level. Consumers are still spending at a healthy pace. A report Tuesday showed that retail sales rose faster than expected last month, fueled by rising online shopping and healthy sales at restaurants and bars, among other categories.

The strong sales figures “suggest a much more robust underpinning to the economy, certainly not what the Fed wants to see” as it seeks to slow inflation, said Quincy Krosby, chief global strategist for LPL Financial.

The Fed’s decision in July to raise rates for an 11th time was unanimous, a sign that the officials remain largely unified even as their decisions become more fraught. The minutes, though, said that two officials favored keeping the Fed’s rate unchanged last month, out of the 18 that took part in the meeting. At least one or both could be among the officials who lacked a vote last month. Only 11 officials currently vote on the Fed’s rate policies.

Since the meeting, Fed officials have expressed contrary views. On Tuesday, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he wants the Fed to keep its options open for another rate hike.

“I’m not ready to say that we’re done, but I’m seeing positive signs that say, hey, we may be on our way,” Kashkari said. “We can take a little bit more time and get some more data in before we decide whether we need to do more.”

By contrast, Patrick Harker, president of the Philadelphia Fed, said he would support leaving rates unchanged for the rest of this year.

“Absent any alarming new data between now and mid-September,” Harker said, “I believe we may be at the point where we can be patient and hold rates steady.”

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WASHINGTON (AP) — Don’t call it a “pause.”

When the Federal Reserve meets next week, it is widely expected to leave interest rates alone — after 10 straight meetings in which it has jacked up its key rate to fight inflation.

But what might otherwise be seen as a “pause” will likely be characterized instead as a “skip.” The difference? A “pause” might suggest that the Fed may not raise its benchmark rate again. A “skip” implies that it probably will — just not now.

The purpose of suspending its rate hikes is to give the Fed’s policymakers time to look around and assess how much higher borrowing rates are slowing inflation. Calling next week’s decision a “skip” is also a way for Chair Jerome Powell to forge a consensus among an increasingly fractious committee of Fed policymakers.

One group of Fed officials would like to pause their hikes and decide, over time, whether to increase rates any further.

But a second group worries that inflation is still too high and would prefer that the Fed continue hiking at least once or twice more — beginning next week.

A “skip” serves as compromise.

When the Fed chair speaks at a news conference next Wednesday, he will likely make clear that the central bank’s key rate — which has elevated the costs of mortgages, auto loans, credit card and business borrowing — may eventually go even higher.

The clearest signal that a skip, rather than a pause, is in the works will likely be seen in the quarterly economic projections that policymakers will issue Wednesday. Those may show that officials expect their key rate to rise a quarter-point by year’s end — to about 5.4%, above their estimate in March.

“That’s probably the only way to keep the committee cohesive in an environment where they have seem to have somewhat broadening disagreements,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities.

For more than a year, the Fed’s 18-member rate-setting committee has presented a united front: The officials were nearly unanimous in their support for rapid rate hikes to throttle a burst of inflation that had leapt to the highest level in four decades. (The committee has 19 members at full strength; one spot is now vacant.)

The Fed raised its rate by a substantial 5 percentage points in 14 months — the fastest pace of increases in 40 years, to a 16-year high. The policymakers hope that the resulting tighter credit will slow spending, cool the economy and curb inflation.

The rate increases have led to sharply higher mortgage rates, which have contributed to a steep fall in home sales. The average rate on a 30-year mortgage has nearly doubled, from 3.8% in March 2022 to 6.8% now. Compared with a year ago, sales of existing homes have tumbled by nearly a quarter.

Credit card rates have also climbed higher — topping 20% on average nationwide, up from 16.3% before the Fed’s rate hikes began. Many consumers have had to bear the weight of that costlier cost credit card debt.

Auto loans have grown more expensive, too. The average rate on a five-year loan has jumped from 4.5% early last year to 7.5% in the first three months of this year.

Several Fed officials contend that rates are already high enough to slow hiring and growth and that if they go much higher, they could cause a deep recession. This concern has left policymakers deeply divided about their next steps.

The camp that’s leaning against another rate increase is considered “dovish,” in Fed parlance. The doves, who include Powell and other top officials, think it takes a year or more for rate hikes to deliver their full effect and that the Fed should stop hiking, at least temporarily, to evaluate the impact so far.

The more dovish officials also worry that this spring’s banking turmoil, with three large banks collapsing in two months, might have compounded the brake on economic growth by causing other banks to restrict lending. Raising rates again too soon, they feel, could excessively weaken the economy.

The doves also think that pausing rate hikes to ensure that the Fed doesn’t go too far might help achieve the tantalizing prospect of a “soft landing.” This is the hoped-for scenario in which the Fed would manage to tame inflation without causing a recession, or at least not a very deep one.

“Maybe the majority of the tightening impact of what the Fed already did is still to come,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said last month. “And then you add the bank stresses on top of it. … We have got to take that into account.”

Another group expresses a more “hawkish” view, meaning it favors further rate increases. Although food and gas prices have come down, overall inflation remains chronically high, hiring remains hot and consumers are still stepping up their spending — trends that could keep prices high.

And some of the reasons Fed officials had previously cited in support of a pause no longer pose a threat. Congress, for example, approved a suspension of the federal debt ceiling, thereby avoiding a U.S. default that could have caused a global economic meltdown.

“I don’t really see a compelling reason to pause — meaning wait until you get more evidence to decide what to do,” Loretta Mester, president of the Cleveland Fed, said last month in an interview with the Financial Times. “I would see more of a compelling case for bringing (rates) up.”

For now, the doves appear to have the upper hand. Powell signaled his support for a pause in carefully prepared remarks May 19.

“Given how far we’ve come, we can afford to look at the data and the evolving outlook and make careful assessments,” Powell said, referring to the Fed’s streak of rate hikes.

More recently, Philip Jefferson, whom President Joe Biden has nominated to serve as vice chair of the Fed, also expressed support for a pause in rate hikes while making clear that it was likely to be a skip.

“A decision to hold our rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said in a speech. “Skipping a rate hike at a coming meeting would allow (the Fed’s policymakers) to see more data before making decisions” about interest rates.

In March, seven Fed officials indicated that they preferred to raise the Fed’s key rate to about 5.4% or higher by the end of 2023. If three more policymakers were to raise their projections next week to that level, that would be enough to boost the median estimate a quarter-point above where it is now.

If only two officials raise their forecasts for rate hikes, it would leave the committee evenly split over whether to hike again later this year. This could create a more muddled message about what comes next.

Still, any skip in rate hikes might not last long. There won’t be much major economic data released between next week’s Fed meeting and the next one in July — just one more jobs report and one more inflation report.

As a result, inflation will likely still remain high, according to the most recent data, when the Fed meets in July, with hiring still strong. The hawks may well prevail at that session and win another rate hike.

A report on inflation in May will be issued on Tuesday, the first day of the Fed’s two-day meeting. But most economists think the officials will largely have their rate decision in mind by then. So the inflation report for May will likely have more influence on what happens at the following Fed meeting in July.

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WASHINGTON (AP) — A key index of U.S. prices ticked higher in April, and consumer spending rebounded, a sign that inflationary pressures in the economy remain high.

The index, which the Federal Reserve closely monitors, showed that prices rose 0.4% from March to April. That was much higher than the 0.1% rise the previous month. Measured year over year, prices increased 4.4% in April, up from 4.2% in March. The year-over-year figure is down sharply from a 7% peak last June but remains far above the Fed’s 2% target.

Friday’s report from the government also showed that despite rising prices, consumers remain buoyant. Their spending jumped 0.8% from March to April, the biggest increase since January. Much of the increase was driven by spending on new cars, which soared 6.2%. Among other items, Americans also bought more computers, gasoline and clothing.

Despite longstanding predictions of a forthcoming recession, Friday’s data underscored the U.S. economy’s surprising resilience. Consumer spending, which drives most of the U.S. economy, has been bolstered by solid job gains and pay increases. The economy, which grew at a sluggish 1.3% annual rate from January through March, is projected to accelerate to a 2% pace in the current April-June quarter.

At the same time, the persistence of high inflation is complicating the Federal Reserve’s interest rate decisions. Chair Jerome Powell has signaled that the Fed will likely forgo a rate hike when it meets in mid-June, after 10 straight increases in the past 14 months. But a vocal group among the Fed’s 18-member interest-rate setting committee has pushed for more rate hikes later this year on the grounds that inflation isn’t slowing quickly enough.

“Inflation is too sticky for the Fed to commit to an extended pause,” said Michael Gapen, U.S. economist at Bank of America Securities. “Even if the Fed skips June, it will keep July in play” for a rate hike.

Among individual items, grocery prices slipped 0.1% in April, a second straight decline. By contrast, gas and other energy costs jumped 2.4%.

Fed officials particularly watch a category of prices called core inflation, which excludes volatile energy and food costs and is considered a better gauge of underlying inflation. Core prices rose 0.4% from March to April, the same as in the previous month, and 4.7% from 12 months earlier. The year-over-year core inflation figure has changed little since it first touched 4.6% in December.

Some economists foresee inflation easing in the coming months. Omair Sharif, founder of Inflation Insights, noted that a few pricing quirks fueled April’s bigger-than-expected rise in core prices and said he believed they won’t likely persist. Legal services, for example, skyrocketed 3.8% from March to April. That was the sharpest such monthly jump on records dating to 1959.

Though used car prices jumped 4.7% last month, Sharif noted that measures of wholesale used car costs are declining and suggested that they will help slow overall inflation by June.

“This is kind of the storm before the calm,” he said.

Another sign that the economy remains solid came in a separate report Friday. It showed that a measure of businesses’ investment in durable factory goods jumped 1.4% in April — evidence that companies have continued to spend despite higher inflation and borrowing costs given still-steady consumer demand.

The inflation gauge that was issued Friday, called the personal consumption expenditures price index, is separate from the government’s better-known consumer price index. The government reported earlier this month that the CPI rose 4.9% in April from 12 months earlier.

The two indexes differ in several ways. Rents carry twice the weight in the CPI that they do in the PCE. And the PCE index seeks to account for changes in how people shop when inflation jumps, such as when they shift from pricey national brands in favor of cheaper store brands.

The latest inflation figures arrive as Fed officials are noisily debating their next steps. Several policymakers have said they favor raising rates even higher in the coming months. But most Fed watchers expect the central bank to forgo another hike at its next meeting in mid-June.

Powell said last week that after raising its benchmark rate to a 16-year high of about 5.1%, Fed officials can afford to wait and see how those increases have affected the economy. It can take a year or more for rate hikes to significantly slow the job market and the overall economy.

The Fed’s ultimate goal is to make borrowing costlier for consumers and businesses and thereby reduce spending, growth and inflation. Its rate increases have led to a more than doubling of mortgage rates and elevated the costs of auto loans, credit card borrowing and business loans. They have also heightened the risk of a recession, which most economists predict will begin sometime this year.

Inflation is a big reason why millions of Americans have expressed a gloomy outlook about the economy, even though the unemployment rate is at a half-century low of 3.4% and many workers have received solid pay gains.

Yet a Federal Reserve report this week found that, on average, inflation has outstripped those wage increases and left many people worse off. At the end of last year, just below three-quarters of Americans said they were “doing OK” financially or living comfortably. That marked a drop of 5 percentage points from the previous year and was among the lowest such levels measured since the survey began in 2016.

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The central bank is acting as a buyer of last resort and propping up the bond market in the most efficient manner possible.

The Federal Reserve on Monday announced a fresh round of stimulus designed to calm markets and buffer the hit to the economy from the Coronavirus pandemic. Among other steps, the Fed said it would buy exchange-traded funds that track the corporate bond market, a first for the U.S. central bank.

“This will provide much-needed liquidity to the bond market and to ETFs,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

Financial markets have been pummeled over the past few weeks. The global oil market has been collapsing just as a virulent pandemic sweeps the world, sapping resources and shutting down economies. Investors across all kinds of markets are racing to “sell everything.”

But the dysfunction may be particularly acute in the market for more highly rated corporate bonds, which aren’t as risky as “high-yield,” or junk-rated, bonds. Investors aren’t used to contemplating such a massive wave of defaults and bankruptcies as the one that might be upon us as companies from cruise ship operators to oil pipeline operators face near zero cash flow.

“All of this is to make sure that people who want to sell have a buyer,” explained Steve Blitz, chief U.S. economist for TS Lombard. “The Fed is taking both sides of the market so people who need to raise cash can do so.”

In large part, the Fed is using ETFs to accomplish this goal because it’s harder to buy individual bonds than stock positions. “ETFs offer the benefits of impacting thousands of bonds in one trade,” Rosenbluth told MarketWatch.

As a second step, Rosenbluth and others think the Fed’s tiptoe may help calm parts of the ETF ecosphere, which has been rattled by record outflows, not just the bond market. For one example, as previously reported, the big investment-grade corporate-bond fund iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, +7.39%, closed on one particularly volatile day about 5% lower than the stated value of its holdings. That means anyone who tried to sell LQD on Thursday received about 95% of what they might have expected. A powerful market stabilizer like the central bank may help buffer strains like those.

On Monday, after the Fed’s announcement, LQD had gained about 6% and a competitor, Vanguard’s Intermediate-Term Corporate Bond Fund VCIT, +5.42%, was about 5% higher.

But Dave Nadig, chief investment officer and research director for ETF Flows, noted in a blog post Monday morning that the Fed’s purchases won’t help with the challenges facing bond ETFs right now. ETF issuers rely on third-party bond pricing services to help them determine pricing for bonds, which don’t trade frequently under normal circumstances, let alone in a crisis. Those services, often seen as imperfect despite being the best option available, help inform the price of the fund itself.

In the current trading environment, Rosenbluth told MarketWatch, “this is a bad environment for trading execution because things are happening so fast that it’s hard to assess fair value.”

Expectations of climbing corporate defaults are adding to the strain. On Friday, the U.S. junk-bond market’s main benchmark, the ICE BofA U.S. High Yield Index, ended the day’s session in distressed territory at 1,009 basis points over Treasurys, according to Marty Fridson, chief investment officer at Lehmann, Livian, Fridson Advisors.

Meanwhile, Goldman Sachs analysts on Friday said they anticipate high-yield defaults to spike to 13% by year-end, even with the Federal Reserve’s revival of crisis-era facilities to pump liquidity into financial markets.

They also pointed out that bond-fund outflows have been driven by ETFs and expect the corporate bond market to remain challenging, “which may result in persistent ETF outflows in the near term.”

Of note, the Fed last week excluded ETFs and other types of assets from being used as collateral when it rolled out a new Primary Dealer Credit Facility to arm key dealers of securities on Wall Street with low-cost loans to jump-start trading again and to boost liquidity.

Still, many observers are applauding the Fed’s commitment to doing what it can to assuage the battering of the financial markets. “While Congress fiddles, Fed continues to get it done,” wrote Chris Low, chief economist for FHN Financial, on Monday morning after the Fed’s announcement.

More to the point, as Blitz notes, “How we got here is ten years of successive liquidity pumped into the market, forcing money into risk assets, building up the economy through financial asset inflation because the real side of the economy didn’t come along to the same extent. The Fed created this monster so it has to be on the other side of it now.”

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