The Federal Reserve’s much-anticipated interest rate cut, expected to boost the U.S. economy and stock market, could be just weeks away.
On Wednesday, the Federal Reserve maintained its key interest rate. Still, it signaled that a reduction could happen as early as mid-September due to easing inflation and a cooling job market.
A report released Wednesday morning showed slowing wage growth, strengthening the case for rate cuts. In a statement following a two-day meeting, the Fed hinted that inflation is easing and expressed growing concerns about the weakening job market.
The statement noted, “inflation has eased over the past year but remains somewhat elevated,” and there has been “some further progress” toward the Fed’s 2 percent inflation goal. This is an update from the June statement, which described inflation as “elevated” with “modest” progress toward the 2 percent target.
Officials also highlighted the labor market’s weakening, providing another reason for potential rate cuts. “Job gains have moderated, and the unemployment rate has moved up but remains low,” the statement said.
The Committee aims to achieve maximum employment and a 2 percent inflation rate in the long term. It believes that the risks to achieving these goals are becoming more balanced. Chairman Powell noted that inflation has significantly decreased because of the restrictive monetary policy, permitting the focus to shift from the inflation mandated to the employment mandate. The economic outlook remains uncertain, and the Committee is mindful of the risks to both sides of its dual mandate.
To support its objectives, the Committee kept the federal funds rate target range at 5.25 to 5.5 percent. When considering any changes to this range, the Committee will carefully evaluate incoming data, the evolving economic outlook, and the balance of risks. It expects to lower the target range once there is greater confidence that inflation is moving sustainably toward the 2 percent goal. Additionally, the Committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. It remains firmly committed to returning inflation to 2 percent.
The Committee will continue to monitor the implications of new information for the economic outlook to determine the appropriate monetary policy stance. It is ready to adjust this stance if necessary to achieve its goals. The Committee’s evaluations will consider a broad range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20240731a.htm
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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