Powell: September Rate Cut ‘Possible’ as Inflation Cools
On Wednesday, Federal Reserve Chair Jerome Powell indicated that the central bank might cut rates for the first time in four years, pointing to improved inflation control and a cooler job market that no longer risks overheating the economy.
According to the American Press, but Powell provided little guidance on how many times the Fed might reduce rates in the coming months.
“I can imagine a scenario in which it would be everywhere from zero cuts to several cuts,” by the end of this year, he said.
Before the Fed’s decision, financial market traders had priced in 100% odds that the central bank would reduce its benchmark rate at its Septermber meeting, according to futures markets. The Fed typically seeks to avoid surprising investors with its rate decisions.
Stocks added a bit to earlier gains and Treasury yields eased after the Federal Reserve held its main interest rate at a two-decade high but gave some indication that an easing may soon be on the way. The S&P 500 ended Wednesday up 1.6%.
The Fed is seeking to strike a delicate balance: It wants to keep rates high enough for long enough to quell inflation, which has fallen to 2.5% from a peak two years ago of 7.1%, according to its preferred measure. But it also wants to avoid keeping borrowing costs so high that it triggers a recession.
Powell portrayed the economy as in something of a sweet spot, with inflation falling and hiring occurring at a solid pace. At the same time, wage growth has cooled, which can reduce inflationary pressure in the economy, as many businesses will lift prices to offset higher labor costs.