An interest rate cut at the Federal Open Market Committee (FOMC) in September is “on the table,” according to Federal Reserve Chairman Jerome Powell’s comments at a press conference on Wednesday.
The news comes after the Fed decided to keep the federal funds rate target range between 5.25% and 5.5%, marking the eighth meeting in a row where the FOMC has chosen not to adjust the rate. A rate cut at the FMOC’s next meeting in September — less than two months before the November presidential election —would be in line with investor expectations, as 100% of interest rate traders currently expect a September cut, according to the CME Group’s FedWatch Tool
“The question will be whether the totality of the data — the evolving outlook in the balance of risks — are consistent with rising confidence on inflation and maintaining a solid labor market,” Powell said. “If that test is met, a reduction in our policy rate could be on the table as soon as our next policy meeting in September.”
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Powell’s bullish comment comes after recent data has signaled falling inflation and a softening labor market.
Inflation fell to 3.0% year-over-year in June compared to 3.3% in May, still stubbornly higher than the Fed’s 2% target, but well below its peak of 9% in June 2022. The inflation rate was just 1.4% when Biden took office in January 2021.
The unemployment rate ticked up slightly from 4% to 4.1% in June.
“We are back to labor conditions that are closer to 2019 conditions,” Powell remarked at Tuesday’s press conference. “I don’t think of the labor market as a key driver of inflation anymore.” Powell also added that “inflation has eased, but remains over [the Fed’s] stated goal of 2%.”
Reduced rates often lead to a spike in stock prices, as the lower rate of return on U.S. treasury bills makes equities look more attractive to investors by comparison, according to U.S. Bank.
Lower interest rates would also mean a lower cost of borrowing, which could boost purchasing power for businesses and consumers, and spur economic growth, thus boosting the Democrats chances of keeping the White House in November, ABC News reported in December.
“A good economy benefits an incumbent,” Ray Fair, a professor at Yale University who oversees a model that forecasts elections based on economic conditions, told ABC News. “A bad economy goes the other way.”
Americans have been struggling with the current elevated cost of borrowing. Credit card delinquency rates reached their highest level since 2012 in the first quarter of 2024, with 2.59% of credit card balances more than 60 days overdue and total revolving balances hitting a record $628.6 billion.
“The broad sense of the committee is that we are getting closer to the point at which it would be appropriate to reduce our policy rate,” Powell told reporters at the FOMC meeting.
Featured Image Credit: Federalreserve
