As expected, no surprises from the Fed leaves rates unchanged in a range between 5.25% and 5.50% but opens the door to a possible cut in interest rates, perhaps as early as September in the last meeting before the American elections.
Fed, no surprises
No definitive commitment but the central bank highlights further progress on inflation while emphasizing the continued strength of the labor market, where the unemployment rate has risen but “remains low.”
“We are attentive to the risks” both on the price front and on work, that is, on both objectives of his dual mandate, maximum employment on the one hand and price stability on the other. Leaving himself free to decide on his next moves, Jerome Powell the necessary flexibility is guaranteed to postpone, if necessary, the expected reduction in the cost of money Novemberwhen the meeting falls immediately after the elections.
But I cut closer
For a rate cut, a “greater confidence” on a sustainable decline in inflation toward the 2% target, the Fed explained in the statement released at the end of the two-day meeting, during which it decided to keep the cost of money unchanged in a range between 5.25% and 5.50%, the highest in over two decades. Decision taken ignoring the pressure of three Democratic senators who, led by Elizabeth Warren, asked in a letter for an immediate cut in the cost of money. “It would be the opposite of political intervention“, they wrote to Powell, noting that economic data justified a reduction in the cost of money.
Spotlight on Jackson HolAnd
As mentioned, the spotlight is on the meeting on the 1st7-18 Septemberand, in fact, the meeting that precedes the vote. “Nothing is decided” on when there will be a cut, said the president of the Fed, specifying however that a reduction in the cost of money is “closer” and September “could be on the table.” An option, in short. But not the only one.
Meanwhile, the markets they are already looking forward to the appointment Jackson Hole scheduled for the end of August, when Powell should indicate more clearly the moves of the central bank.