Fed leaves key interest rates unchanged, alludes to cuts coming in September

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The Federal Reserve held its key interest rate steady again Wednesday but signaled that a long-awaited interest rate cut may be just weeks away – as soon as mid-September. According to an article from The New York Times, the Fed’s decision on a rate cut will come on Sept. 18, when policymakers next meet. The rate of inflation has dropped substantially from a peak of over 8% in 2022 down to 3% for the month of June.

Rates remained unchanged Wednesday afternoon after the bank’s July meeting on Wednesday, with the Fed deciding to hold interest rates steady at about 5.3 percent.  However, a report Wednesday morning provided the latest evidence that wage growth is slowing, bolstering the case for rate cuts. According to the CME FedWatch Tool, economists think chances the Fed will cut rates in September are 85%.

On July 15, Fed Chair Jerome Powell said he would not wait until inflation is down to 2% to begin interest rate cuts: “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.”

Powell added at an Economic Club meeting in Washington: “For a long time, since inflation arrived, it’s been right to mainly focus on inflation. But now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates. They’re in much better balance.”

According to the U.S. Bureau of Economic Analysis, the U.S. economy rose sharply in the second quarter, with GDP up a higher-than-expected 2.8%, while the U.S. Bureau of Labor Statistics shared that it will release its July jobs report Friday.

Editorial credit: Muhammad Alimaki / Shutterstock.com

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