The Federal Reserve kept interest rates unchanged on Wednesday but signaled it could cut rates soon if inflation continues to moderate.
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Kevin Dietsch/Getty Images North America
The Federal Reserve left interest rates unchanged on Wednesday, but investors are betting that the first rate cut in more than four years could come soon, if inflation continues to moderate.
“Inflation has eased over the past year but remains elevated,” the Fed’s rate-setting committee said in statement“In recent months, there has been some progress toward the Committee’s 2 percent inflation objective.”
Prices rose just 2.5 percent in June from a year earlier, according to central bank data. preferred measure of inflationWhile the figure is higher than the Fed’s 2% target, it shows that inflation continues to move in a positive direction, paving the way for the Fed to lower borrowing costs in the near future.
Fed Governor Chris Waller has hinted at a change in a speech this month titled “Closer”.
“While I don’t believe we’re there yet, I do believe we’re getting closer to the point where we need to cut policy rates,” Waller told an audience at the Federal Reserve Bank of Kansas City.
Fed policymakers voted unanimously to keep their benchmark interest rate at 5.25% to 5.5%, where it has been for the past year. That represents the highest level in more than two decades, making it more expensive to borrow money to buy a car, finance a business or carry a credit card balance.
The Fed is reluctant to wait too long.
While Fed officials previously worried that cutting rates too soon could spark inflation, they have grown increasingly confident that price stability is about to be restored. They also worry that waiting too long to cut rates could unnecessarily weaken the job market.
The unemployment rate edged up to 4.1% in June — from a half-century low of 3.4% in 2023. Last month’s data will be released Friday.
“Job growth has slowed and the unemployment rate has risen but remains low,” Fed policymakers said in their statement.
A cooling job market has been evident in a report from the Department of Labor on Wednesdayshows that employers’ labor costs are rising more slowly. Wages and benefits costs rose 4.1% in the twelve months ended June, compared with 4.5% a year earlier.
Regulating labor costs will help control inflation, especially in the labor-intensive service sector.
