Odds of an imminent cut had surged in recent weeks
The Federal Reserve has held its key interest rate steady at the conclusion of its latest meeting on rates, although its accompanying statement is likely to increase speculation that a cut is on its way in September.
The central bank said this afternoon that it had opted against lowering the federal funds rate from its current level of 5.25% to 5.5%, but markets believe it could be prepared to cut at its next meeting amid signs of a cooling economy and slowing labor market.
For now, rates will remain where they are, meaning the Fed has now landed its key rate in that range for each of the last eight successive announcements stretching back to 2023.
The Federal Open Market Committee’s two-day deliberations began against the backdrop of a slowly climbing unemployment rate, which at 4.1% sits at its highest level since February 2018.
Labor market optimism has also been dulled in recent weeks. The economy is adding jobs at its slowest pace for a decade, while about 1.5 million unemployed Americans have been without work for 27 weeks or more.
Inflation, meanwhile, appears to be trending in broadly the right direction. Bureau of Labor Statistics figures released earlier today showed the employment cost index – a key inflation gauge watched by the Fed – increased by less than expected in the second quarter, rising by 0.9% compared with economists’ expectations of a 1.0% uptick.
The overall consumer price index (CPI) saw its slowest annual pace of growth in a year, according to the Labor Department, hitting 3% and falling for the third time in a row.
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