The Federal Reserve has decided to keep its benchmark interest rate steady at 5.25-5.50% for the eighth consecutive meeting, a level unchanged since July 2023. This decision, announced on July 31, 2024, comes despite previous market expectations of a potential rate cut in the near future.While acknowledging ‘some further progress’ towards its 2% inflation target, the Federal Open Market Committee (FOMC) emphasized the need for ‘greater confidence that inflation is moving sustainably towards 2%’ before considering rate cuts. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index (PCE), stood at 2.5% annually in June, its lowest reading since February 2021.The decision reflects the Fed’s cautious approach amid mixed economic indicators. While inflation has cooled significantly from its peak of around 9% in June 2022, the U.S. economy has shown resilience, growing at a 2.8% rate in the second quarter of 2024. However, there are signs of potential economic cooling, with the unemployment rate rising to 4.1%, the highest since November 2021.Fed Chair Jerome Powell stated, ‘We are giving ourselves time to see how the economy evolves’. This stance suggests that while a rate cut in September remains possible, it will depend heavily on forthcoming economic data. The Fed’s next meeting is scheduled for September 17-18, which some analysts view as a potential inflection point for monetary policy.Market reactions to the Fed’s decision have been mixed. The S&P 500 continued to rise by 1.59% following the announcement, while the 10-year US bond yield slightly increased but remained in decline at 4.122%. The dollar index reduced its losses to -0.13%, reflecting the complex interplay of economic factors influencing currency markets.As the Fed navigates this delicate economic landscape, it remains committed to its dual mandate of price stability and maximum employment. The central bank’s decision-making process will continue to be data-dependent, with particular attention to inflation trends and labor market dynamics in the coming months.
Key points
- Federal Reserve maintains interest rate at 5.
- Fed acknowledges progress towards 2% inflation target but needs ‘greater confidence’ before considering rate cuts.
- Economic indicators show mixed signals, with cooling inflation but resilient GDP growth.
- Potential rate cut in September remains possible, dependent on forthcoming economic data.
25-5.
50% for the eighth consecutive meeting.
Contradictions👾While some sources suggest a high probability of a rate cut in September, others indicate the Fed is more cautious and may delay cuts further.
