WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday kept its target for the fed funds rate at 5.25%-5.50% for the eighth consecutive time, as expected, but Chairman Jerome Powell stressed that the first rate cut was coming closer.
“We at the (Fed’s monetary policy committee) believe that we are getting closer to the point where rates will go down, but we are not there yet,” the president of the American central bank explained at a press conference, adding that the second-quarter inflation figures had given more confidence in the slowdown in price dynamics.
“A cut could be on the table at the September meeting,” Powell added, stressing however that the Fed would remain dependent on data. “More good data will give us more confidence,” he said.
In a sign that the debate is intensifying within the central bank, the Fed chairman explained that a rate cut had been discussed during the meeting.
The disinflation phenomenon, which concerned goods, is now extending to non-housing services and to certain aspects of housing, explained Jerome Powell.
Moreover, labor markets are normalizing and have returned to their pre-COVID situation, solid but not overheating, he detailed.
MORE BALANCED RISKS
In the statement released after its monetary policy meeting, the Fed stressed that risks across the two mandates “continue” to balance out.
The central bank now judges inflation to be “rather high,” a significant change from previous statements in which it reported “high” inflation.
In fact, PCE inflation, the measure the Fed uses as part of its 2% inflation target, hit 2.5% in June, while the latest monthly jobs report highlighted rising unemployment.
If the economy remains strong, the central bank will seek to avoid a recession triggered by rates that are too high for too long, which would cause unemployment to rebound.
The risks of a reversal in activity are, however, “low”, judged Jerome Powell.
Market participants now expect the Fed to cut rates at every meeting this year, with three rate cuts of 25 basis points each.
(Howard Schneider; written by Corentin Chappron)
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