Federal Reserve Chief Jerome Powell set the stage for the central bank to cut rates for the first time in four years on Wednesday. Using stronger evidence of decreased inflation and a cooling labor market that no longer poses a threat to the economy's overheating.
However, in spite of expectations to lower it by a percentage point, on Wednesday, the Federal Reserve maintained its benchmark interest rate at a high of more than 2 decades at 5.3 per cent.
Alternatively, Powell stated that 'a reduction in our policy rate could be on the table' at the Fed's upcoming meeting on September 17–18 if inflation keeps subsiding.
Although we're not quite there yet, Powell stated, 'we're getting closer to the point at which it will be appropriate to reduce our policy rate.'
It is unlikely to have a significant impact right away because financial markets have already been priced at a rate that the Fed has cut. However, as time goes on, lower Fed rates should lower the cost of borrowing for both individuals and companies, including rates for auto loans and mortgages.
The Federal Reserve will meet again in November, two days after the election, following the September meeting.
Fed's comment on economy's health
The Federal Reserve acknowledged that the unemployment rate has increased in a statement released on Wednesday, saying that 'job gains have moderated.'
Congress has directed the Federal Reserve to pursue maximum employment and stable prices, and the central bank's statement indicated that it is cognizant of the risks involved in pursuing these objectives.
After several years of Fed officials concentrating only on slowing price increases, there has been a significant shift in focus to include both inflation and employment.
Federal Reserve goals
The Fed is attempting to achieve a delicate balance according to its preferred measure, inflation has dropped to 2.5 per cent from a peak of 7.1 per cent two years ago. It wants to keep rates high enough for a long enough period of time to suppress inflation. However, it also wishes to avoid maintaining borrowing costs at such high levels as to start a recession.
Powell described the state of the economy as being in a sort of sweet spot, with hiring expanding steadily and inflation declining. Concurrently, wage growth has slowed, which can lessen the economy's inflationary pressure since many companies will raise prices to cover their increased labor expenses.
Rate reduction effect on election
Rate reductions might also help the economy and possibly help Vice President Kamala Harris' chances of winning the next presidential election. Donald Trump, the former president, has stated that the Fed shouldn't lower rates prior to the election.
