Fed on Course for September Rate Cut as Risks to Job Market Grow
Federal Reserve Chair Jerome Powell signaled central bank officials are on course to cut interest rates in September unless inflation progress stalls, citing risks of further labor-market weakening.
Powell said policymakers are moving closer to lowering borrowing costs from a more than two-decade high, highlighting a growing confidence at the Fed to dial back its restraints on the economy. He was careful, however, not to wed officials to a rate reduction should price data prove disappointing in the coming months.
“The changes in the statement and the press conference today basically tell you that September is going to happen unless the economic outlook changes materially,” former New York Fed President William Dudley said on Bloomberg Television.
The Federal Open Market Committee held the federal funds rate in a range of 5.25% to 5.5% on Wednesday, a level they have maintained since last July.
“The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market,” Powell told reporters Wednesday. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”
Adjustments to the post-meeting statement, followed by Powell’s comments, underscored how policymakers are increasingly worried about unduly weakening the labor market, a shift from their laser focus on inflation for more than two years.
“The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate,” policymakers wrote, rather than prior wording focused just on inflation risks.
Powell framed the labor market as solid but slowing. Hiring has moderated, and the unemployment rate has ticked up to 4.1% — the highest since 2021 but still a historically low level. Layoffs remain modest.
But he said it doesn’t need to soften more for the Fed to reach its 2% inflation goal.
“We’ve had this really significant decline in inflation and unemployment has remained low,” Powell said at the press conference, adding that it was an unusual and welcome outcome. “What we’re thinking about all the time is ‘how do we keep this going?’”
