Fed keeps rates at 23-year high, sees further progress on inflation
Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., July 27, 2022. (Reuters Photo)
The U.S. Federal Reserve decided to keep its key lending rate unchanged on Wednesday, maintaining the benchmark interest rate at 5.25 percent to 5.50 percent. This rate has remained at its highest level in 23 years.
Following two days of discussions, the Fed’s policymakers voted unanimously to keep rates steady, reflecting a cautious optimism about their ongoing efforts to curb inflation. The central bank noted that there has been “some further progress” toward its inflation target of 2 percent.
Recent data show the Fed’s preferred measure of inflation eased to an annual rate of 2.5 percent last month. Economic growth has stayed robust, and the labor market has improved, moving closer to balance. In its statement, the Fed acknowledged, “In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
This update represents a shift from the Fed’s June assessment, which indicated only “modest further progress” in the fight against inflation. The Fed added that it is “attentive to the risks to both sides of its dual mandate,” encompassing both employment and inflation targets.
Federal Reserve Chair Jerome Powell is scheduled to speak later today and may provide additional insights into potential future actions, including the possibility of an interest rate cut in September. Powell’s forthcoming remarks could also be influenced by his upcoming keynote address at a central bankers’ conference in Jackson Hole, Wyoming, next month.
Futures traders are highly anticipating a rate cut, with CME Group data showing a 100 percent probability for a reduction in September. The expectation follows a previous adjustment by Fed officials in June, who reduced their forecast of interest rate cuts from three to one for the year.
Recent improvements in economic data have led futures traders to estimate a 60 percent chance that the Fed will implement at least 0.75 percentage points of cuts this year, likely through three separate quarter-point reductions.
A potential rate cut in September would place the Fed in the spotlight of the 2024 presidential election, featuring former President Donald Trump and Vice President Kamala Harris. Trump has criticized Powell, whom he appointed, alleging political bias and suggesting that he might not reappoint Powell if he wins the election.
