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Federal Reserve officials were widely expected to leave their key interest rate unchanged at 5.3 percent for a 12th straight month on Wednesday to slow economic growth and curb inflation, a decision that holds significant implications for President Biden, who, despite not seeking re-election, has aides hoping for months that a rate cut before the election would signal to voters that inflation is under control and borrowing costs for houses, cars, and more are set to decrease.
Stocks rose as Wall Street awaited the Fed’s decision. The S&P 500 was up 1.6 percent while the Nasdaq gained 2.5 percent, led by chipmaker Advanced Micro Devices after a strong earnings report on Tuesday.
The Federal Reserve left interest rates unchanged at 5.3 percent in their July decision, while keeping the door open to a coming rate cut in September. The Fed’s statement called inflation only “somewhat elevated,”
In their statement, the Committee stated that recent indicators suggest economic activity has continued to expand at a solid pace, with job gains moderating and the unemployment rate slightly increasing but remaining low. Inflation has eased over the past year but is still somewhat elevated. In recent months, there has been progress toward the Committee’s 2 percent inflation objective.
Additionally, the FOMC stated, "To support its goals, the Committee has decided to maintain the target range for the federal funds rate at 5.25 to 5.5 percent. They will carefully assess incoming data, the evolving outlook, and the balance of risks before making any adjustments to the target range. The Committee does not expect to reduce the target range until there is greater confidence that inflation is moving sustainably towards the 2 percent goal. Additionally, the Committee will continue to reduce its holdings of Treasury securities, agency debt, and mortgage-backed securities."
Jerome Powell later noted that, " My colleagues and I remain squarely focused on achieving our dual mandate of maximum employment and stable prices for the benefit of the American people. Our economy has made progress towards both goals over the past few years. The labor market has come into better balance, and the unemployment rate remains low. Inflation has eased substantially...we remain focused on reducing inflation towards our 2 percent goal."
Powell remarked that the job market has returned to the state it was in prior to the pandemic, though inflation remains higher. He noted that cutting rates early might disrupt the Federal Reserve's goal of stabilizing the economy in the long term and could weaken the labor market and the purchasing power of consumers. However, he emphasized that the Reserve is prepared to "address any change that may occur in the future."
On a rate cut in September, Powell noted, "The economy is moving in a direction in which a rate cut would be appropriate, but the decision will be highly data dependent."
In Responce to the annoucment markets saw a small rise with the Nasdaq up 2% and the Dow Jones up 1%.