Fed holds US rates steady, softly signals September trim
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The news: The Federal Reserve held interest rates steady at 5.25% to 5.5%, the highest in over 20 years and the rate it has maintained for the past year, but signalled the potential for a cut in September amid easing inflation and a cooling job market.
The numbers: The Federal Open Market Committee’s (FOMC) decision was unanimous, according to its statement, which underscored risks to both inflation and employment, suggesting a more balanced approach to its dual mandate. The bank acknowledged progress toward its 2% inflation target in the past year but noted inflation remains “somewhat elevated”.
The context: The labour market has shown signs of cooling, with job gains moderating and the unemployment rate rising to 4.1%.
Despite that, the Fed’s statement repeated it would not lower rates until there is “greater confidence” that inflation is moving sustainably towards its 2% target.
“We are not there yet,” Fed Chair Jerome Powell said at a press conference.
Following the announcement, two-year Treasury yields rose, the dollar weakened and the S&P 500 index pared some of its daily gains. A 25 basis point cut remains fully priced in for September, according to Bloomberg data.
What they said: “In recent months, there has been some further progress toward the committee’s 2% inflation objective,” the FOMC said in the statement. “The committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.”
The sources: US Federal Reserve statement, Bloomberg
