Federal Reserve Chairman Jerome Powell said Wednesday that the central bank could cut interest rates “as early as” September if inflation and the job market continue to cool.
After the Fed announced it would keep interest rates steady on Wednesday, Powell said it needed to see a combination of generally healthy economic data, along with a continued rise in “confidence in inflation” and a “robust labor market.”
“If this criterion is met, a cut in the policy rate could be considered as early as at the next meeting in September,” he told reporters.
Powell’s comments came after the Fed left its benchmark interest rate unchanged at a range of 5.25% to 5.5% on Wednesday amid growing speculation that the central bank would start cutting rates later this year.
Markets had expected the Fed to keep rates on hold as inflation continued to fall over the summer, but not quickly enough for the central bank to ease policy: The CME FedWatch forecasting algorithm, based on futures contract prices, projected just a 3% chance of a July rate cut in the hours before the meeting.
Stock prices rose ahead of the decision, with the Dow Jones Industrial Average, which includes the 30 largest U.S. companies, up more than 200 points in morning trading.
The Fed has kept interest rates at their current levels since August last year in response to rising inflation, but inflation has been declining more than expected over the past two years.
Inflation has fallen sharply from a peak of around 9% in June 2022 and had remained above 3% for the past year, before finally slipping to the 2% range in June.
Prices fell for the first time in June, down 0.1% from May to rise 2.98% from a year earlier, according to the Federal Reserve Bank of St. Louis.
The Labor Department’s June employment report revealed the weak employment levels behind the recent price data. April employment was revised down to 108,000, while May employment was revised up to 208,000, a total of 111,000 fewer than previously reported. The unemployment rate also rose to 4.1%, the first time it has exceeded 4% since 2021.
“We’ve had a quarter of good inflation and the labor market has moved quite a bit. And as I said, I don’t think we need to get any colder to get inflation results that are related to the labor market. Of course, inflation isn’t everything,” Powell said.
Powell acknowledged earlier this month that the central bank needs to be wary not just of stagnant inflation but also of an unexpected rise in unemployment due to tightening working conditions.
“We’re very conscious that we’re facing risks right now on both sides,” he told lawmakers in early July.
The Fed’s statement on Wednesday contained some softer language about the overall state of the economy but no clear indication that a rate cut is on the horizon.
“Employment growth has moderated,” the Fed said, and “the unemployment rate, while rising, remains low.”
“The Committee is mindful of risks to both sides of its mission of maintaining price stability while minimizing unemployment,” Fed officials wrote.
He also walked back on his description of the state of inflation, saying it was now “slightly rising” rather than “rising” as he had previously said.
Updated 3:29 p.m.
