The Federal Reserve has held interest rates steady for the sixth straight year but hinted it is moving closer to cutting them.
The central bank made notable changes to its policy statement, indicating that inflation is nearing its target, and Fed Chair Jerome Powell said an interest rate cut could be possible next month.
However, officials stopped short of making any explicit commitment to cut interest rates in September, as widely expected.
The policy statement described inflation as “somewhat elevated,” down from previous months, and said there had been “further progress toward the Committee’s 2 percent inflation objective.”
In June, the Fed said only “modest” progress had been made in reducing inflation, which hit a 40-year high two years ago.
The central bank has kept interest rates between 5.25% and 5.5% for the past year. This range sets a benchmark for interest rates on credit cards, mortgages and other consumer debt products that strain household budgets.
The Federal Reserve has held interest rates steady for the sixth straight time, but hinted that it is closer to cutting them (pictured: Chairman Jerome Powell speaking at a press conference after the announcement)
The Federal Reserve has kept interest rates between 5.25 and 5.5 percent at its last meeting
“The Committee views the risks to its employment and inflation objectives as continuing to shift toward better balance,” the policy statement said.
This is an improvement over previous language, shifting commitments to reduce inflation and maintain a healthy labor market to a more equitable position.
This change is significant because it suggests that inflation may no longer be an obstacle to lowering rates, particularly if the labor market continues to cool. The Wall Street Journal reported.
The central bank has kept interest rates between 5.25% and 5.5% for the past year. This range sets a benchmark for interest rates on credit cards, mortgages and other consumer debt products that strain household budgets.
Markets had been looking for signs that the Fed will begin cutting rates next month for the first time in more than four years.
At a press conference after the announcement, Federal Reserve Chairman Jerome Powell said: “We have not made any decisions about future meetings and that includes the September meeting.
‘The committee’s overall sense is that the economy is approaching the point at which it will be appropriate to reduce our policy rate.’
He said the decision would depend on the data, but would not be a matter of responding specifically to one or two data releases.
‘The question will be whether the totality of the data, the evolution of the outlook and the balance of risks are consistent with growing confidence in inflation and the maintenance of a solid labour market.
“If that test is passed, a reduction in our policy rate could be on the table as early as the next meeting in September.”
This comes after a series of encouraging data on inflation and the health of the US economy.
The annual inflation rate was 3 percent in June, down 0.1 percent month-on-month from May.
He The US economy also accelerated in the final quarter, with consumers and businesses increasing their spending despite continued pressure from high interest rates.
Economists said this could mean the economy is on track for a “soft landing,” which is good news for the stock market.
This rare slowdown occurs when the inflation rate returns to the Federal Reserve’s 2 percent target without triggering a recession.
Stocks rose after the announcement, good news for 401(K) accounts
The annual inflation rate was 3 percent in June, above the Fed’s 2 percent target.
GDP grew at an annual rate of 2.8 percent during the April-June quarter of 2024
Stocks rose after the announcement, with the S&P 500, Nasdaq and Dow Jones Industrial Average all up.
A strong stock market is good for 401(K)s and other retirement accounts, which are mostly invested in indexes like the Dow, Nasdaq and S&P 500 and through stocks of individual U.S. companies like Apple.
A rate cut would be welcome news for consumers, as high interest rates have kept borrowing costs high and put pressure on household budgets.
Credit card rates, for example, change in line with the Federal Reserve’s benchmark figure, so they would quickly reflect a cut and provide some breathing room for borrowers.
Car loans, student loans and mortgages are not directly influenced by the benchmark rate, but would be affected in turn.
Rates offered on 30-year fixed-rate mortgages, for example, track the yield on 10-year Treasury bonds.
Bonds are influenced by several factors, including inflation predictions, Fed actions, and investor reactions as a result.