The Fed is keeping interest rates unchanged, but cuts are on the horizon
The Federal Reserve On Wednesday, interest rates were held at a range of 5.25% to 5.5%, the eighth consecutive meeting in which rates remained unchanged.
“In considering any adjustments to the target range for the Federal Funds Rate, the Committee will carefully review the incoming data, the evolving outlook, and the balance of risks,” officials said in a report. rack. “The Committee does not expect that it will be appropriate to lower the target range until it has gained greater confidence that inflation is moving sustainably towards 2 percent.
“In addition, the commission will continue to reduce its holdings of government bonds, government debt and mortgage-backed securities. The Committee is determined to return inflation to the 2 percent target.”
The announcement was not a surprise given the signals Fed policymakers have shown in recent months. Market analysts had also given long expectations for a rate cut this week, with near-unanimous agreement that there would be no changes, the report said. CME Group‘s FedWatch tool.
The fed funds rate has not moved since July 2023, when the Fed implemented a quarter-point increase, the latest in a series of hikes aimed at curbing 40-year high inflation. The benchmark interest rate was last cut in March 2020 in response to the COVID-19 outbreak.
Mortgage rates have fallen by roughly half a percentage point since their peak in May, but remain stubbornly hovering around 7%. The pace of sales of existing homes is greatly delayed since peaking in February, although pending sales grew 4.8% from May to June, according to data released Wednesday by the National Association of Real Estate Agents.
Attention now turns to the Fed’s meeting in September, where analysts also unanimously agree that interest rates will be cut. Many observers, including The Wall Street Journal, have argued for a cut because of lower inflation and rising unemployment – factors that the Fed itself has identified as essential before cuts can be implemented.
The Journal recently pointed out that core inflation – which excludes volatile prices for things like food and energy – fell to an annual rate of 2.6% in June. That was down from 4.3% a year ago and a peak of 5.6% in February 2022. And a few weeks ago, Fed Chairman Jerome Powell said officials are unlikely to wait for inflation to desired target of 2% before they start making cuts.
“The Fed’s reluctance is understandable,” the Journal said. “The country likes to telegraph its plans well in advance and, having so badly inflated its inflation forecasts before, is doubly cautious.
“But if the Fed were truly data-dependent and relied on its own forecasts, it would be a comfortable rate cut. … Cutbacks entail risks, but so does waiting.”
Fed officials have publicly stated that the November election will play no role in interest rate policy, but Democrats and Republicans are inserting their agendas into the conversation.
In a recent one interview Like Bloomberg – given before Joe Biden dropped out of the race – Republican presidential candidate Donald Trump said the Fed should not cut rates ahead of the election. Trump also refuted previous reports that he would seek to remove Powell from office if elected a second time.
Democratic lawmakers have been calling for interest rate cuts for some time now, as has Senator Elizabeth Warren of Massachusetts among the most vocal proponents.
Editor’s Note: This is a developing story and will be updated.
