The US central bank has maintained its key interest rate at a 23-year high, as anticipated, while indicating the possibility of future rate cuts. The Federal Reserve noted that its efforts to stabilize prices have shown “some” progress, with job gains “moderating” and rising unemployment. However, the target rate remains at 5.25%-5.5%, unchanged since last July.
The Fed’s goal of keeping borrowing costs high is to slow the economy and control inflation. Despite this, there is growing pressure to reduce rates as inflation eases and the job market cools. Global attention is on the Fed, as other central banks, like the Bank of Canada and the European Central Bank, have already implemented rate cuts. Investors are particularly interested in the upcoming decision from the Bank of England.
In the US, many investors anticipate a rate cut as early as September. Analysts observed that the Fed’s recent announcement showed increased concern for the job market compared to its June meeting, hinting at a potential rate cut in the coming months. Brian Coulton, chief economist at Fitch Ratings, suggested that the Fed might cut rates in September if economic data justifies it.
The upcoming presidential election adds complexity to the Fed’s decisions. A rate cut before the November vote could benefit Democrats by reducing borrowing costs for households and businesses. Republican candidate Donald Trump has criticized such a move, suggesting it would be politically motivated.
Some analysts warn that delaying rate cuts could harm economic growth. Matthew Morgan, head of fixed income at Jupiter Asset Management, believes waiting for clear signs of unemployment and inflation improvements might be too late, arguing that the current risks warrant immediate action.