But the full effect of the Fed’s moves is still playing out. The fallout could be intensified by a series of recent high-profile bank failures, which might make other lenders nervous and prompt them to pull back on extending credit.
And Congress is approaching a showdown over raising the nation’s debt limit, which could also shape the outlook: If markets panic as Democrats and Republicans struggle to reach a deal and investors worry that the American government will fail to pay its bills, that could trickle out to hurt the economy.
Democrats have warned that the brinkmanship could undermine progress in a strong economy with slowing inflation, while Republicans argued on Wednesday that rapid inflation is evidence that they are correct to demand spending cuts.
With so many factors poised to weaken the economy, Fed officials are now assessing whether they need to raise borrowing costs further, or whether their moves so far will suffice to guide inflation back to normal. John C. Williams, the president of the Federal Reserve Bank of New York, told reporters in New York on Tuesday that the Fed’s next decision — to lift rates or to pause — would hinge on incoming data.
“We’ll adjust policy going forward based on what we see out there,” he said.
Policymakers will receive the consumer price report for May on June 13, the day before their decision, but officials typically give markets at least a hint of what they might do with rates ahead of time. Given that, central bankers are likely to pay close attention to the April inflation report.