Fed opts to hold interest rates steady — but a cut could be coming in September

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A bank of television screens on the floor of the New York Stock Exchange shows Federal Reserve Chairman Jerome Powell on July 31.

US markets closed higher after Federal Reserve Chair Jerome Powell signaled at his afternoon press conference that rate cuts are coming.

“A rate cut could be on the table in the September meeting,” Powell told reporters after the central bank announced it would keep rates stable.

Tech stocks also rallied after Advanced Micro Devices beat earnings expectations. Shares of Nvidia gained 12.8%, marking the best day for the chipmaker since February.

The Dow was 100 points, or 0.2%, higher.

The S&P 500 grew by 1.6%.

The Nasdaq Composite gained 2.6%.

As stocks settle after the trading day, levels might still change slightly.

The US job market is in a good place — job creation is decent, demand and supply are in better balance and activity is gradually normalizing to pre-pandemic levels.

But it needs to stay that way, because the “downside risks are real now,” Federal Reserve Chair Jerome Powell said Wednesday.

“I would not like to see material further cooling in the labor market,” he said during a press conference following the central bank’s post-meeting statement.

As inflation has slowed, the Fed has become increasingly attentive to the employment side of its dual mandate.

The unemployment rate has been on the rise, hiring activity has absolutely declined, job postings have grown fewer, and unemployment insurance claims indicate people are staying unemployed for longer. However, most economic indicators support the idea that the jobs market is no longer overheated and could easily maintain a new normal of steady, but slower growth, economists have said.

“I wouldn’t say we don’t want to see any other cooling; it would have to be a material difference: If we see something that looks like a more significant downturn, that would be something that we would have the attention of responding to,” he said. “I think we’re in a good place here.”

When asked if waiting until September to loosen monetary policy would lead to unnecessary unemployment, Powell said Fed officials will have to weigh the “totality of the data.”

“Certainty is not a word that we have in our business,” he said.

Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington, DC, on July 31.

If the Federal Reserve cuts interest rates in September, it could look to some like the central bank was assisting Democrats in the election by providing Americans with a bit of financial relief right before they head to the polls two months later.

In contrast, if the Fed waits until its November meeting, which takes place over the course of the two days directly after Election Day, to cut it may look as though it was trying to help Republicans.

But Fed Chair Jerome Powell said that most certainly would not be the case in either scenario. The Fed, he said, will act in the best interest of the American economy regardless of the timing.

“We don’t change anything in our approach to address other factors like the political calendar,” he added. “We never use our tools to support or oppose a political party, a politician, or any political outcome.”

Powell also said Fed officials are not making calculations on who will be in the White House come January. “That would just be a line we would never cross.”

When the Federal Reserve starts cutting its overnight lending rate, it will affect the interest rates on your debts and your savings. But in some cases, those effects — positive or negative — may not be as large as you think. 

Now that inflation has slowed substantially and is expected to cool further, the central bank is expected to embark on a rate-cutting campaign over the next two years, starting as early as September.

If it does, rates should decline on a wide swath of financial products for Americans, from credit cards and home loans to bank accounts and certificates of deposit, among others.

Given how many ways lower rates can affect your finances, there are a few things to consider when deciding what steps to take in response.

“Interest rates took the elevator going up, but they will take the stairs coming down,” said Greg McBride, chief financial analyst at Bankrate.

That’s because one or even two quarter-point rate cuts this year won’t meaningfully reduce many of your interest costs. But several cuts over the next year or two could make a noticeable difference, and it may be worth holding your fire on some moves until then.

Read more here.

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31 in Washington, DC.

Federal Reserve Chair Jerome Powell finally said what everyone was already thinking: “A rate cut could be on the table in the September meeting.”

Markets don’t only believe it’s on the table — they’re trading like a rate cut is certain to happen at the Fed’s next meeting, on September 17-18.

Still, Powell didn’t want to commit to any future cuts, noting, “The broad sense of the [Fed’s interest rate-setting] committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.”

So what will it take to push the Fed to the rate-cut finish line come September?

There are two scenarios that would push the Fed to cut: more good inflation data or a sudden worsening in economic conditions.

“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond,” Powell said, implying that this would lead the central bank to lower rates.

But overall, he said, “The question will be: Whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence and maintaining a solid labor market.”

“If that test is met, the reduction of the policy rate could be on the table as soon as our next policy meeting in September,” Powell said.

Traders work on the floor of the New York Stock Exchange today.

Stocks built on their gains during Federal Reserve Chair Jerome Powell’s press conference after he hinted that rate cuts are coming.

The Dow rose 438 points, or 1.1%. The S&P 500 gained 2.1% and the Nasdaq Composite popped 3.1%.

Powell cautioned that a September rate cut isn’t set in stone but signaled that a rate cut is “on the table.”

“We have made no decisions about future meetings. That includes the September meeting. The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate,” Powell told journalists.

People pass the New York Stock Exchange on July 30.

Here’s what Wall Street has to say after the Federal Reserve held interest rates steady.

The Federal Reserve building is shown May 2, 2023 in Washington, DC. 

The Federal Reserve’s statement that came out at 2 pm ET didn’t say it explicitly, but reading between the lines, it certainly feels like a rate cut is coming.

At last month’s meeting, the Fed’s statement said, “Inflation has eased over the past year but remains elevated.” Now the statement reads, “Inflation has eased over the past year but somewhat elevated,” implying that the central bank believes inflation is even less of a risk compared to its last meeting.

Fed officials appear more concerned about the state of the labor market now than they did in June. “Job gains have moderated, and the unemployment rate has moved up but remains low,” the Fed’s July statement read. Last month it said, “Job gains have remained strong, and the unemployment rate has remained low.”

Taken together, these changes imply the Fed is gearing up to cut rates because it’s been keeping rates high to rein in inflation. But because that no longer appears to concern the Fed as much, and the weakening labor market is concerning, it more likely means the Fed thinks the economy could benefit more from loosening financial conditions.

Stocks were steady Wednesday afternoon after the Federal Reserve announced that it is holding interest rates steady at a 23-year high.

The Dow rose 274 points, or 0.7%. The S&P 500 gained 1.6% and the Nasdaq Composite added 2.4%.

Investors are looking to Fed Chair Jerome Powell’s press conference slated for 2:30 pm ET for clues about whether the central bank plans to cut rates in September.

Federal Reserve Bank Chair Jerome Powell during a news conference at the Federal Reserves’s William McChesney Martin building on June 12 in Washington, DC. 

The Federal Reserve said Wednesday it will continue to hold its benchmark interest rate at current levels, marking a full year since the cost of borrowing first reached a 23-year high.

The central bank also gave an important clue that it will likely cut its benchmark lending rate in the coming months, noting that inflation is now just “somewhat” elevated.

As expected, central bank officials chose not to cut rates Wednesday, which would have paved the way for lower borrowing costs for Americans on everything from mortgages and car loans to credit cards.

Wall Street is betting with near certainty that the Fed will introduce its first rate cut of this cycle at the next policy meeting, in September.

Economic development and residential construction have been booming in fast-growing Tampa, Florida.

The Tampa-St. Petersburg-Clearwater region in Florida recently saw the lowest inflation rate among 23 metropolitan areas across the country — 1.8% in the 12 months that ended in May, according to data from the Consumer Price Index. That’s a stunning reversal from last year when it was one of the highest.

The Honolulu metro area in Hawaii, meanwhile, saw the nation’s highest annual inflation rate in May, at 5.2%. Nationwide, inflation is running at 3% annually, the latest CPI showed.

Economic development and residential construction have been booming in the fast-growing Tampa Bay region. Housing costs have therefore eased over the past year, tugging inflation overall much lower. A jump in homebuilding has also largely contributed to Houston, Minneapolis and Denver having the nation’s lowest inflation rates, according to economists.

Housing costs make up about a third of the Labor Department’s CPI, a closely watched inflation gauge. The CPI’s shelter index measures tenants’ rents and how much a homeowner would pay to rent out their own home, known as owners’ equivalent rent. Inflation is down substantially from the 40-year highs of two years ago, but housing costs have remained stubbornly elevated.

That’s proven to be a key obstacle for the Federal Reserve’s historic inflation fight, but the situation has improved recently. After getting stuck early this year, price pressures continued to moderate in the second quarter, nudging the Fed closer to cutting interest rates, currently nestled at a 23-year high.

Traders work on the floor of the New York Stock Exchange during morning trading on July 31.

Stocks continued climbing Wednesday mid-morning as Wall Street waited for the Federal Reserve to announce its latest interest rate decision.

The Dow rose 243 points, or 0.6%. The S&P 500 gained 1.6% and the Nasdaq Composite jumped 2.5%.

The broad move higher was led by tech stocks after chipmaker Advanced Micro Devices reported strong earnings on Tuesday evening. AMD shares added 4.4% and Nvidia shares popped 11.7%.

 A home available for sale is shown on May 22 in Austin, Texas. 

The vast majority (86%) of current renters in the United States say they would like to buy a home — but can’t afford one, according to a CNN poll conducted by SSRS released Monday.

Among those same renters who can’t afford to buy a home right now, 54% think it’s unlikely they’ll ever be able to, the poll found.

The findings underscore the damage done by the one-two punch of surging home prices and elevated mortgage rates, creating an affordability crisis. And given that homeownership is the ticket to wealth generation in America, that pessimism exacerbates the risk that the divide between the haves and have-nots will only grow.

Read more here.

Traders work on the floor of the New York Stock Exchange during morning trading on July 31. Stocks opened up high amid the latest earnings reports and the market anticipating an interest rate decision from Federal Reserve Chair Jerome Powell.

Wall Street is patiently waiting for the Federal Reserve to confirm investors’ widely held belief that the central bank will begin cutting interest rates in just a few months.

Economists and traders mostly expect a quarter-point cut to be announced on September 18, at the conclusion of the Fed’s next policy meeting.

But there’s a small faction that believes that cut could actually be a half point in size.

Some market observers have even floated the possibility of the Fed cutting by as much as three-quarters of a point by September.

Neither of those are likely to happen, but of course anything is possible. (After all, most people didn’t expect the Covid-19 pandemic to upend society in 2020, or for the US economy to avoid a recession in 2023, or for inflation to get stuck in the first three months of this year.)

Generally, the Fed makes its decision congruent with what’s going on with inflation or the job market. In the summer of 2022, when inflation was running at 40-year highs, the Fed was hiking by three-quarters of a point. During the Great Recession, it cut rates by three-quarter points at several meetings.

Right now, there’s no emergency that demands the Fed respond with anything larger than a quarter-point cut. Inflation is back on a downward trend and the job market is running at a slower (but still steady) pace.

But for a half-point cut to happen, it “could be due to something super bad or something super good,” said Bill English, a finance professor at the Yale School of Management and a former senior adviser to the Fed.

“If inflation comes down faster than expected, then that means real interest rates are actually higher than officials thought and they might want to make that adjustment,” he told CNN. “But the more likely scenario for now is cutting by a quarter point.”

Austan Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago, speaks during the Midwest Agriculture Conference at the Federal Reserve Bank of Chicago in Chicago, Illinois, on Nov. 28, 2023.

Austan Goolsbee, president of the Chicago Federal Reserve, wasn’t set to vote on monetary policy decisions until 2025. But after Loretta Mester retired last month as president of the Cleveland Fed, he’ll be stepping in temporarily as an alternate voter at this month’s big policy meeting.

Goolsbee hinted recently that he feels it could be time to start cutting rates. “You only want to stay this restrictive for as long as you have to, and this doesn’t look like an overheating economy to me,” he said in an interview earlier this month.

Goolsbee will be voting with 11 other Fed officials, who have expressed varying views over when the central bank should start lowering borrowing costs.

At the next meeting in September, he’ll return to serving as an alternate for the remainder of the year after Beth Hammack, the new Cleveland Fed president, begins working at the regional Fed bank.

The nation’s debt load keeps getting bigger and bigger and bigger.

The gross national debt of the US surpassed $35 trillion in July, just seven months after reaching $34 trillion and less than a year after topping $33 trillion.

But the worrisome milestone went essentially unnoticed by the presidential candidates. Though reining in the debt has been a political priority in past elections, it is not a major talking point in the 2024 campaign — even though the next occupant of the Oval Office will have to deal with roughly $4 trillion in expiring tax cuts next year. This year’s GOP party platform doesn’t even mention the national debt.

What’s more, the debt ceiling returns in January, which will also force some difficult negotiations on Capitol Hill and in the White House.

Budget hawks, however, are calling attention to the growing fiscal imbalance.

“Crossing $35 trillion in debt is a stark reminder that we need to get serious about securing America’s fiscal future,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said in a statement. “We can’t keep pretending this is not a problem.”

Earlier this year, Federal Reserve Chair Jerome Powell warned that the nation is on an unsustainable fiscal path.

The repeated Fed rate hikes are adding to the debt load: Net interest payments are now the second-largest spending category in the federal budget, surpassing defense and Medicare and trailing only Social Security benefits.

The nation’s fiscal problems are only expected to get worse. The federal budget deficit will hit $1.9 trillion this fiscal year, according to an updated projection released last month by the Congressional Budget Office. That’s 27% — or $400 billion – larger than the agency estimated in February.

Looking longer term, the nation’s debt will approach $57 trillion in fiscal year 2034, nearly $2.5 trillion higher than previously projected, as spending on Social Security, Medicare and interest payments soar and revenues fail to keep pace.

After launching one of the most aggressive monetary-tightening campaigns, starting in March 2022, the US central bank has kept interest rates at a 23-year high for the past 12 months, waiting for inflation to show a sustained trajectory of slowing.

That’s happened, certainly in recent months.

However, Fed officials are admittedly more attuned to the stability of the labor market, which has cooled and seen a steady uptick in the unemployment rate.

The Fed will announce its latest interest rate decision Wednesday, which is widely expected to be another pause. Markets are projecting the first rate cut will come in September.

“I don’t think [a September rate cut] would be too late, but I understand the case for why the Fed should cut rates earlier,” Glassdoor lead economist Daniel Zhao told CNN.

“The difficulty with this is always that monetary policy operates on long and variable lags; so, we have already seen a pretty strong slowdown in the housing market, and if a rate cut comes in September, the question is how long does it take to trickle through the job market?”

“Clearly, we’ve seen a pretty dramatic slowdown in hiring, and that goes along with a sluggish quits rate,” he said of the latest Job Openings and Labor Turnover Survey. “And I think that together, the slow hiring and quits point to a job market that’s lacking in healthy turnover.”

US markets were higher Wednesday morning as investors await the Federal Reserve’s interest rate decision this afternoon.

The Fed concludes its policy meeting today and officials are expected to keep interest rates the same.

All eyes, however, will be on Fed Chair Jerome Powell’s 2 pm ET press conference as investors watch for clues about future rate cuts.

Chipmakers, meanwhile, led tech stocks higher after Advanced Micro Devices beat earnings expectations.

The Dow was 129 points, or 0.3%, higher. The S&P 500 grew by 1.3%. The Nasdaq Composite gained 2.2%.

Commuters at a subway station in New York City on June 6.

A closely watched measure of employee compensation costs showed that wage growth continues to slow toward more normal levels.

The Employment Cost Index rose at a seasonally adjusted 0.9% pace during the second quarter, taking a step back from the 1.2% increase seen in the first three months of the year and marking its slowest quarterly advance in three years, according to Bureau of Labor Statistics data released Wednesday.

On an annual basis, wages and benefits grew 4.1%, edging back from the prior reading of 4.2%.

Economists were expecting a quarterly and annual gain of 1% and 4.3%, respectively, according to FactSet estimates.

Worker compensation spiked during the nation’s economic recovery from the pandemic as consumer demand outstripped the supply of available workers. While the strong wage gains were not the direct cause of the inflation spike, fears long persisted that stronger-than-average pay growth could drive prices even higher.

The Federal Reserve favors the ECI over other wage trackers because it provides a more comprehensive measurement of compensation and includes not just wages but also the costs of benefits provided to workers.

While compensation growth has slowed after peaking at 5.1% two years ago, it still remains above pre-pandemic levels. In 2019, annual wage gains averaged nearly 2.8%, BLS data shows.