Federal Reserve Chair Jerome Powell suggested on Wednesday that the central bank might cut interest rates at its September meeting if economic conditions continue to improve.
Key Points from Powell’s Statement:
- Potential Rate Cut: Powell indicated that a rate cut could be considered at the Fed’s September meeting if the current economic data trends continue. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September,” he said.
- Inflation and Employment: Recent data shows inflation moving closer to the Fed’s 2% target, while unemployment has risen slightly above 4%. The Fed’s policy statement highlighted its focus on balancing maximum employment with stable prices.
- Data Dependence: Powell emphasized that the Fed will rely on comprehensive economic data, rather than isolated data points, to make decisions about rate cuts. The central bank seeks to ensure that any rate adjustments are consistent with rising confidence in inflation and maintaining a strong labor market.
- Inflation Gauge: The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose by 2.5% year over year in June. The upcoming non-farm payrolls report, due on Friday, is expected to show slower hiring.
- Rate Cut Details: The Fed held its benchmark rate steady at 5.25% to 5.50% on Wednesday. If a rate cut occurs, it is expected to be 25 basis points, or 0.25 percentage points. Powell mentioned that a larger 50-basis point cut is “not something we’re thinking about right now.”
- Future Meetings: The Federal Open Market Committee, which will decide on any rate changes, is scheduled to meet on September 17 and 18. Powell will also speak at the Jackson Hole Economic Policy Symposium in late August, where further insights into the Fed’s stance may be provided.
Powell’s comments reflect the Fed’s cautious approach as it navigates between controlling inflation and supporting economic growth. Investors and economists will be watching closely for further developments in the coming weeks