Fed Hold Rates Steady And Casts Doubt On September Cut

By PATRICK LAVERY

Saying “the risks to achieving our employment and inflation goals continue to move into better balance,” Federal Reserve Chairman Jerome Powell on Wednesday touted the fall of inflation from a post-pandemic high of 7% to its current 2.5% but held firm on the Fed’s key interest rate, which the Federal Open Market Committee earlier in the day voted to maintain at a range of 5.25% to 5.5%.

What that means, in the long view, is that the federal funds rate will have remained steady at that level for more than a year by the time of the next FOMC meeting, scheduled for Sept. 17-18 – when experts have widely come to a consensus that rate cuts may finally begin.

The chairman did not say too much about the real estate market, or a 30-year fixed-rate mortgage rate that remains meaningfully above 7% on average, but did say that although overall economic activity has been expanding, investment in the housing sector stalled in the second quarter following a robust start to the year.

Powell struck a moderate tone when addressing the United States unemployment rate, which ticked up above 4% in June (4.1%), contrasting that against average job gains of 177,000 per month in the second quarter, a solid number but below the pace of the first quarter.

It was that upward creep in unemployment that had some of the experts, and even Powell himself earlier in July, hinting that waiting for inflation to hit 2% flat to cut the key rate might mean waiting too long.

But Powell doubled down on the 2% target on Wednesday.

“The Fed has been assigned two goals for monetary policy – maximum employment and stable prices,” Powell said in prepared remarks to the media following the FOMC meeting. “We remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored.”

Although Powell said a reduction in policy rate could be on the table as soon as the September meeting, he stressed the FOMC has made no decisions about future meetings.

For those who may have a significant degree of certainty about September’s FOMC outcome, Powell sounded a note of caution, suggesting that the freeze of the target range for the key rate could go on indefinitely.

“If the economy remains solid and inflation persists, we can maintain the current target range for the federal funds rate as long as appropriate,” Powell said.

That quote expanded somewhat, though not too specifically, on part of the FOMC’s policy statement which read the Fed would have to have “greater confidence that inflation is moving sustainably toward 2%” to consider it appropriate to lower the rate.

As has followed previous meetings, the Fed’s Implementation Note directed the Open Market Desk at the Federal Reserve Bank of New York to reinvest the amount of principal payments from holdings of agency debt and mortgage-backed securities received in each calendar month, exceeding a cap of $35 billion, into Treasury securities.

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