The Federal Reserve decided to keep its policy steady, which was expected by many. However, the policy statement was more cautious than what most people were anticipating. Chairman Jerome Powell mentioned during the post-meeting press conference that the central bank is nearing a point where a rate cut might be considered.
The benchmark fed funds rate range was left unchanged at 5.25%-5.50%, but the Fed did not provide a clear indication that a rate cut in September is certain. The central bank acknowledged that inflation has decreased over the past year but still remains somewhat high. The economic outlook is uncertain, and the Federal Open Market Committee (FOMC) is paying close attention to the risks associated with their dual mandate.
Following the unexpected cautious statement, bond yields and the dollar slightly increased, although they were still lower for the day. The price of bitcoin dipped to $66,550 but remained slightly higher over the previous 24 hours. Meanwhile, U.S. stocks saw significant gains for the session, with the Nasdaq rising by 2.4% and the S&P 500 by 1.6%.
The Federal Reserve began tightening its policy in early 2022 to combat rising inflation, eventually increasing the fed funds rate from 0% to 5.25%-5.50% in less than 18 months. The rate has been maintained at this level for over a year as the central bank has been cautious about easing due to persistent high inflation levels.
Before the meeting, the market was anticipating at least a 25 basis point rate cut by the mid-September meeting, according to CME FedWatch. Looking ahead, there was a nearly 60% probability of a 75 basis point rate cut by the Fed’s final meeting of 2024 in mid-December.
During the press conference, Fed Chair Jerome Powell expressed more confidence that inflation is gradually moving towards the 2% target. While no firm decisions have been made regarding a rate cut in September, Powell noted that there is a general sense that the Fed is getting closer to taking action.