The Federal Reserve left interest rates unchanged on Wednesday but could begin making cuts as soon as its next meeting in September, Fed chair Jerome Powell said.
The central bank voted to leave their benchmark federal funds rate in the range of 5.25% to 5.5% but noted progress in bringing down inflation and moderating jobs growth.
“Inflation has eased over the past year but remains somewhat elevated,” the central bank said in a statement. “In recent months, there has been some further progress toward the Committee's 2% inflation objective.”
Speaking to the media after the decision, Powell signalled a September rate cut is possible.
“The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” he said.
“The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table or as soon as the next meeting in September.”
The Fed used today’s statement to prepare markets for upcoming rate cuts, LPL Financial chief economist Jeffrey Roach believes.
“As inflation rates improve and unemployment increases, the Fed can cut rates yet keep the nominal funds rate above the inflation rate. Markets will likely respond favorably to the subtle shift in tone,” Roach said.
The Fed’s decision did not dampen Wednesday’s tech-led stock rally.
The Nasdaq added 3% at 17,666 points, the S&P 500 was up 2% at 5,547 points and the Dow Jones gained 1.1% at 41,177 points on Wednesday afternoon.