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Home»Economic News»Federal Reserve says first cut to US interest rates could come in September
Economic News

Federal Reserve says first cut to US interest rates could come in September

July 31, 2024No Comments3 Mins Read
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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The Federal Reserve has indicated the possibility of lowering interest rates starting in September, following the decision to maintain borrowing costs at a 23-year high for the eighth consecutive meeting. Fed chair Jay Powell mentioned during a press conference that a rate reduction could be on the table as early as the next meeting in September, with discussions within the Federal Open Market Committee about potential rate cuts.

The FOMC emphasized the need for “further progress” towards achieving its 2 per cent inflation target, but emphasized the requirement for increased confidence before implementing rate cuts. Powell highlighted the positive impact of the second quarter’s inflation readings on their confidence levels.

These comments indicate a shift in the central bank’s policy stance after a prolonged period of fighting against inflation. Market experts interpret Powell’s statements as a strong signal of potential rate cuts in the upcoming months.

Concerns over the labor market have also influenced the Fed’s decision-making, with a recognition of risks related to both sides of its dual mandate. Powell emphasized that the Fed does not necessarily need to see further labor market weakening to address inflation concerns.

The Fed’s upcoming September meeting, where a quarter-point cut from the current 5.25-5.5 per cent benchmark interest rate is anticipated, holds significance as the last meeting before the November presidential election.

Despite recent political pressures from the Trump administration, Powell reiterated the Fed’s commitment to maintaining independence and focusing on economic factors rather than political influences.

Market reactions to Powell’s statements included a drop in short-term Treasury yields and increased expectations of rate cuts later this year. Traders are pricing in multiple rate cuts by the end of the year, with a high probability of adjustments in the coming months.

The shift in interest rate expectations has also impacted financial markets, with stock indices like the S&P 500 and Nasdaq experiencing positive movements in response to the news.

Inflation, which had surged in the wake of the Covid-19 pandemic, is now showing signs of decline towards the Fed’s target rate. Powell highlighted recent data indicating a trend towards disinflation, while also noting a slowdown in the labor market growth.

The central bank’s objective of achieving a “soft landing” for the economy involves balancing inflation targets without triggering a recession. Powell remains optimistic about the Fed’s ability to navigate these challenges and ensure economic stability.

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Donald Trump and Jerome Powell

Economists and analysts are closely monitoring the Fed’s decisions, with expectations of further rate cuts in the coming months to stimulate economic growth. The central bank’s actions will play a crucial role in shaping the economic landscape in the near future.

cut Federal Interest Rates Reserve September
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