WASHINGTON (AP) — Federal Reserve Chair Jerome Powell on Wednesday set the stage for the central bank’s first rate cut in four years, citing greater progress toward lower inflation as well as a cooler job market that no longer threatens to overheat the economy.
Still, the Fed kept its key interest rate unchanged at a 23-year high of 5.3%, despite calls from some economists and Democratic politicians to implement a cut Wednesday. Instead, Powell said that, if inflation continues to fall, “a reduction in our policy rate could be on the table” when the Fed next meets Sept. 17-18.
“We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate,” Powell said, “but we’re not quite at that point.”
A rate cut by the Fed is unlikely to have much immediate impact because it is largely expected by financial markets. Yet over time, lower Fed rates should reduce borrowing costs for consumers and businesses, including mortgage and auto-loan rates.
AP Washington correspondent Sagar Meghani reports the Federal Reserve suggests its first key interest rate cut in four years is getting closer.
Rate cuts could also bolster the economy and potentially improve Vice President Kamala Harris’ prospects in the upcoming presidential election. Former President Donald Trump has said the Fed shouldn’t cut rates before the election. After September, the Fed’s next meeting is two days after the election in November.
In a statement Wednesday, the Fed said that “job gains have moderated” and acknowledged that the unemployment rate has risen. The Fed is required by Congress to pursue stable prices and maximum employment, and the statement said the central bank is “attentive to the risks” to both goals.
The focus on both inflation and employment is a major shift after several years of Fed officials focusing exclusively on combatting rising prices.
“They’re ready to cut, just as long as we don’t get an inflation suprise between now and September, which we won’t,” said Mark Zandi, chief economist at Moody’s Analytics. “Better late than never.”
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…