Agencies
Doha
The Federal Reserve held interest rates steady on Wednesday but opened the door to reducing borrowing costs as soon as its next meeting in September as inflation continues coming into line with the US central bank’s 2 percent target.
"There has been some further progress toward the committee’s 2 percent objective,” the central bank’s Federal Open Market Committee said in a statement at the end of a two-day policy meeting in which it kept its benchmark overnight interest rate in the 5.25 September -5.5 September range, but also set the stage for a cut at its September 17-18 meeting, just seven weeks shy of the November 5 USelections.
While Fed officials are wary of any actions that could mar their data-not-politics approach to setting monetary policy, the steady drop in inflation in recent months prompted a broad consensus that the inflation battle was nearan end.
Inflation, the Fed said, was now just "somewhat elevated,” a key downgrade from the assessment that it has used throughout much of its battle against rising prices that it was "elevated.”
"We have made no decisions on future meetings” when it comes to rate cuts and all policy decisions will be made on a meeting-by-meeting basis, Fed Chair Jerome Powell said at a press conference after the meeting. But he added that as Fed officials have been gaining confidence price pressures are moderating, "the economy is moving closer to the point where it will be appropriate to reduce our policy rate.”
US stocks moved to the day’s high as Powell spoke, while Treasury yields and the dollar dropped.
Traders kept bets that the Fed will start dialing back on its restrictive policy in September, with rate-futures pricing reflecting expectations the first move will be a 25-basis-point cut, followed by two more such reductions at the meetings in November and December.
"This was a baby step on the way to a September rate cut,” said Omair Sharif, president of Inflation Insights. "I expect that further good news on the inflation front in July should set up ... (Powell) to deliver a more meaningful signal that a rate cut in September is very likely.”
The central bank uses the personal consumption expenditures price index for its 2 percent annual inflation target. The PCE price index rose 2.5 percent in June after exceeding 7 percent in 2022.
US central bankers have said it would be appropriate to reduce borrowing costs before inflation actually returns to their target to account for the time it takes monetary policy to affect the economy.
(See also page 9)