The Federal Reserve held interest rates steady in a range of 5.25% to 5.50%, as expected, but seemingly suggested a reduction could come as early as the next meeting in September.
“There has been some further progress towards the Committee’s 2% objective,” the post-meeting statement said, noting inflation was “somewhat elevated.” That was a notable change from the last meeting when the statement labeled inflation as “elevated.” In addition, the Fed removed language that it was “highly attentive to inflation risks,” replacing it with an acknowledgement that policymakers were now “attentive to the risks to both sides of its dual mandate,” which includes maintaining maximum employment consistent with the inflation target.
The Fed did not commit in its statement to a rate cut in September, though the wording changes in the statement seem to point in that direction.
J.P. Morgan said, “Historically, the Fed doesn’t sit on the sidelines during election years, but rather continues to pursue its dual mandate of price stability and maximum employment, while maintaining its independence from politics. Since 1980, the Fed has either hiked or cut rates in every single election except 2012, when rates were at zero and the economy was still healing from the financial crisis. Otherwise, the Fed cut rates in five election years and hiked in five election years.”
Without giving “specific forward guidance,” Fed Chair Jerome Powell said, “a rate cut could be on the table at the September meeting,” if inflation continues to decline, economic growth remains reasonably strong and the labor market remains consistent. On timing the first rate cut, Powell noted the Fed’s dilemma... “Go too soon and you undermine progress on inflation, wait too long and you put at risk the recovery.”
Asked about former President Donald Trump’s comments that it would not be right to lower rates ahead of the election, Powell responded: “We don’t change anything in the approach to address the other factors, like the political calendar. Congress has ordered us to conduct our business in a non-political way at all times, not just some of the time. We never use our tools to support or oppose the political party, a politician or any political outcome.”