WASHINGTON – Federal Reserve officials kept short-term interest rates steady on Wednesday but said inflation is moving closer to target, which could open the door to future rate cuts.
However, central bankers stopped short of explicitly signaling that a rate cut was imminent, choosing instead to maintain language of continued concern about economic conditions despite progress. They also maintained a statement that more progress was needed before cutting rates.
“The Committee judges that risks to achieving its employment and inflation objectives continue to be more balanced,” the FOMC report said. Statement after the meeting Say, a slight upgrade from the previous language.
“Inflation has eased over the past year but remains at elevated levels,” the statement continued. “In recent months, some further progress has been made towards the Committee’s 2 percent inflation target.”
However, Talk to the mediaChairman Powell said that while no decision has been made on action at future meetings, a rate cut could be implemented as soon as September if economic data shows inflation has eased.
“If this test passes, our policy rate could be lowered as soon as our next meeting in September,” Powell said.
As for the Fed’s statement, its language was also an upgrade from the June meeting, when the policy statement said only “modest” progress had been made in reducing price pressures, which two years ago had been at levels not seen since the early 1980s. the highest level. The previous statement also described inflation as “higher” rather than “slightly higher.”
There were other adjustments, with the FOMC voting unanimously to keep its benchmark overnight borrowing rate target between 5.25%-5.5%. The rate, the highest in 23 years, has been in place for the past year and is the result of 11 rate hikes aimed at reducing inflation.
One of the changes noted that committee members were “concerned” about risks to both sides of its full employment and low-inflation mandate, and removed the word “high” from the June statement.
market We have been looking for signs that the Federal Reserve will cut interest rates at its next meeting in September. Assuming a 25 percentage point change in interest rates, futures are pricing in further rate cuts at the November and December meetings. Stocks rose after the committee’s decision was announced.
However, the statement left intact a key sentence about the Fed’s intentions: “The Committee believes it would be appropriate to lower the target range until there is greater confidence that inflation will continue to move toward 2 percent.”
This sentence highlights the Fed’s reliance on data. Officials insist their rates are not on a predetermined course and are not guided by forecasts.
Recent economic data suggests price pressures are well below their peak in mid-2022, when inflation reached its highest level since the early 1980s.
The Fed’s preferred measure is the personal consumption expenditures price index, which shows inflation About 2.5% per year, although other meters showed slightly higher readings. The Fed has set an inflation target of 2% and is sticking to that target despite pressure from some quarters to tolerate higher levels.
The economy continues to expand even as the Federal Reserve maintains its tightest monetary policy in decades.
Register gross domestic product Annualized growth rate is 2.8% Second-quarter results were well above expectations, driven by consumer and government spending and inventory restocking.
Despite less robust labor market data, 4.1% unemployment rate A far cry from what economists consider full employment. The Fed’s statement noted that the unemployment rate “has increased but remains low.” Data from payroll processing company ADP on Wednesday showed Private sector employment grew by only 122,000 in Julyindicating that the labor market may be weakening.
However, there was some positive inflation data in the ADP report, with wages growing at the slowest pace in three years. Also on Wednesday, the Labor Department reported that wages, benefits and salary costs rose just 0.9% in the second quarter, below expectations and the 1.2% level in the first quarter.
Federal Reserve officials have Vow to be carefulWhile there are signs that inflation is easing, there are concerns that the economy will not be able to sustain borrowing costs that are the highest in about 23 years for much longer. Their stance was bolstered somewhat on Wednesday when another economic report showed that pending home sales surged a stunning 4.8% in June, beating expectations for a 1% increase.
