The Federal Reserve held interest rates steady on Wednesday but opened the door to reducing borrowing costs as soon as its next meeting in September as inflation continues coming into line with the U.S. central bank's 2% target.
The central bank's Federal Open Market Committee ended a two-day policy meeting by keeping its benchmark overnight interest rate in the 5.25%-5.50% range.
Inflation, according to the Fed's statement, was now just "somewhat elevated," a key downgrade from the assessment that it has used throughout much of its battle against rising prices that inflation was "elevated."
MARKET REACTION: STOCKS: The S&P 500 held a 1.59% gain BONDS: The yield on benchmark U.S. 10-year notes ticked higher but was still down on the day at 4.122%. The 2-year note yield rose to 4.381% FOREX: The dollar index pared a loss to -0.13% with the euro slipping from unchanged to -0.09%
COMMENTS: BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“The Fed is tiptoeing towards being confident enough to cut. Adding that they are attentive to the risks to both sides of their dual mandate tees them up to cut in September if the next two CPI reports are well-behaved.”
JAKE DOLLARHIDE, CEO, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA
“It was the worst kept secret on the planet that the Fed was not going to cut in July. The Fed is going to have its day in the sun in September with a 25 or 50 basis point cut, but I would not be surprised if that is already priced into stocks. We may actually see the market down significantly the day the Fed actually cuts rates in September.” MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email )
“There continues to be positive indicators that this may be the last meeting before we see an interest rate reduction at the next Fed meeting in September, with the possibility of a second rate reduction for 2024 still on the table.
“As it applies to consumer demand for credit around large purchases such as homes and autos, this will likely begin to increase if, and when rates eventually begin to fall. Indeed, we are even seeing some early indicators that consumers are becoming more interested in new mortgages. Until rates do drop meaningfully, however, consumers should continue to use credit wisely and only to the extent that they know they can make their minimum monthly payments on.”