The Federal Reserve decided to keep interest rates at the same level on Wednesday, July 31, but at the same time opened the way for lowering the cost of borrowing at a meeting to be held in September.

Currently, inflation in the United States is on a trajectory towards the country’s central bank’s 2% target. Against the background of the corresponding tendency, the level of realism of the assumption increases that in September the US financial regulator will decide to ease the monetary policy strategy, which implies, among other things, cutting interest rates.

In a statement released by the Federal Open Market Committee following the results of the two-day meeting on policy issues, it is noted that some further progress has been made in achieving the inflation rate of 2%. At the mentioned meeting, it was decided to keep the benchmark overnight interest rate in the 5.25%-5.5% range. At the same time, the current state of affairs in the space of the United States economic system forms a kind of platform of circumstances and conditions for lowering the cost of borrowing in the foreseeable future. The next meeting of the US central bank will be held on September 17-18, seven weeks before the presidential election, which is scheduled for November 5. It is worth noting that Fed Chairman Jerome Powell has repeatedly stated that the political situation in the United States is not a factor influencing the concept of the activity of the financial regulator.

Currently, US central bank officials are taking an extremely cautious approach in the context of a potential change in monetary policy. In their opinion, it is necessary to obtain the maximum possible amount of data confirming that inflation in the United States is on a trajectory toward the Fed’s target before deciding on lowering the cost of borrowing. Recently, the dynamic of the growth in the cost of goods and services in terms of prospects for further continuation of the corresponding process within the current vector and pace is favorable for cutting interest rates. At the same time, the mentioned process is in a certain sense uneven and is not unambiguously positive.

The Fed says that inflation was now just somewhat elevated.

Jerome Powell, during a press conference following the two-day meeting, said that officials had not made any decisions regarding further discussions. It is worth noting that for the Fed, the lack of prior planning for the content of meetings is something like standard practice. At the same time, Jerome Powell said that the United States economy is approaching the moment when it would be advisable to lower the cost of borrowing.

After the statements of the chairman of the Fed, the value of US stocks reached a daily high. Treasury yields and the dollar dropped.

Traders continue to bet that in September the central bank of the United States will begin to ease monetary policy. The statements made by Jerome Powell on Wednesday did not contain any signals that the mentioned expectations are unlikely in terms of prospects for their materialization.

Omair Sharif, president of Inflation Insights, described the Fed’s rhetoric following the two-day meeting as a baby step on the way to a September rate cut.

The latest policy statement from the United States financial regulator does not contain the traditional wording that the central bank is highly attentive to inflation risks. This time, it was stated that officials are attentive to the risks to both sides of its dual mandate, which includes a charge from Congress to maintain maximum employment consistent with stable prices.

The Fed also noted that currently, the economic system of the United States continues to be on a trajectory of steady growth. Moreover, the US financial regulator said that job gains have moderated, but the unemployment rate remains low.

At the same time, the unemployment rate in the United States is still rising, and this fact is unequivocal. In June, the corresponding figure reached 4.1%. At the beginning of 2023, the unemployment rate in the United States was 3.4%

The Fed did not commit to lowering borrowing costs in September. The Central Bank of the United States has once again reiterated that to decide on monetary policy easing, it is necessary to form confidence that inflation is moving towards the 2% target.

As we have reported earlier, ECB Keeps Rates Steady.