The Federal Reserve on Wednesday kept benchmark interest rates at a range of 5.25% to 5.5%, the eighth consecutive meeting in which rates were unchanged.
“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” officials said in a statement. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
“In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.”
The announcement was not a surprise given the signals that Fed policymakers have shown over the past few months. Market analysts had also given long odds for a rate cut this week, with near-unanimous agreement that no changes would occur, according to the CME Group‘s FedWatch tool.
The federal funds rate has not changed since July 2023, when the Fed implemented a quarter-point hike, the last in a series of increases designed to curb 40-year-high inflation. Benchmark rates were last lowered in March 2020 in response to the COVID-19 outbreak.
Mortgage rates have decreased by roughly half a percentage point since peaking in May but are stubbornly hovering around 7%. The pace of existing-home sales has slowed sharply since peaking in February, although pending sales grew by 4.8% from May to June, according to data released Wednesday by the National Association of Realtors.
Attention now turns to the Fed’s meeting in September, where analysts are equally unanimous that rates will be lowered. Many observers, including The Wall Street Journal, have been arguing in favor of a cut due to cooler inflation and rising unemployment — factors that the Fed itself has mentioned as essential before any cuts can be made.
The Journal recently pointed out that core inflation — which excludes volatile prices for items like food and energy — fell to an annualized rate of 2.6% in June. That was down from 4.3% one year ago and a peak of 5.6% in February 2022. And a few weeks ago, Fed Chair Jerome Powell said that officials were unlikely to wait until inflation reached the preferred target of 2% before making cuts.
“The Fed’s reticence is understandable,” the Journal stated. “It likes to telegraph its plans well in advance and, having blown its forecasts on inflation so badly before, is doubly cautious.
“But if the Fed were truly data-dependent and trusted its own forecast, it would be comfortable cutting interest rates now. … A cut does bring risks, but so does waiting.”
Fed officials have publicly stated that the November election will play no role in rate-setting policies, but Democrats and Republicans are inserting their agendas into the conversation.
In a recent interview with Bloomberg — given before Joe Biden dropped out of the race — Republican presidential nominee Donald Trump said the Fed should not not cut rates prior to the election. Trump also refuted previous reports that he’d seek to remove Powell from his post if he were elected for a second time.
Democratic lawmakers, meanwhile, have been calling for rate cuts for some time, with Sen. Elizabeth Warren of Massachusetts among the most vocal proponents.
Editor’s note: This is a developing story and will be updated.
