The Federal Reserve on Wednesday held its rate target steady for the eighth meeting in a row, although investors think that the central bank will finally cut interest rates in the coming months.
After a two-day meeting of its monetary policy committee in Washington, D.C., the Fed announced it will keep its rate target at 5.25% to 5.50%. The move was widely telegraphed and does not come as a surprise.
In a statement, the committee said that its goals for the labor market and inflation “continue to move into better balance.”
The group stopped short, though, of signaling that it would cut rates at the next meeting, in September.
Because inflation remained high in the first half of the year, and even rose at some points, the timing for when the Fed might first cut interest rates has been consistently pushed back since the start of 2024. For a time, it appeared possible the central bank wouldn’t cut rates at all this year, although recent data showing inflation is falling has made that less likely.
The Wednesday decision now marks one year since the Fed has changed rates at all. The rate target is still the highest it has been since 2006, before the global financial crisis.
Vice President Kamala Harris’s campaign for president would welcome an interest rate cut before the election, as higher interest rates make it expensive to borrow to buy a house or car.
The Fed’s goal is for long-run inflation to run at about 2%, a level that it considers healthy. By raising interest rates, the Fed dampens demand and can lower inflation.
Inflation fell to 3% for the year ending in June, according to the most recent reading of the consumer price index. The 0.3-point decline was more than predicted by economists, who projected that inflation would fall to 3.1% in June from the 3.3% notched the month before.
The Fed updates its multiyear projections for inflation, GDP, and unemployment every other meeting, with the latest update coming at its June meeting.
Then, Fed officials said they see inflation, as gauged by the personal consumption expenditures index, falling to 2.6% by the end of 2024.
The officials also predicted that the unemployment rate would be 4% by the end of this year.
Looking ahead, in terms of gross domestic product growth, they predict a modest 2.1% growth in 2024.
Thus far, the resilient labor market has given the Fed insulation to keep interest rates high, although there have been some signs that the labor market is softening.
The economy added 206,000 jobs in June, and the unemployment rate rose a tenth of a percentage point to 4.1%, the Bureau of Labor Statistics recently reported. The unemployment rate has been trending up a bit in recent months. The next jobs report will be released on Friday.
In a sign of some gradual softening, June job openings fell to just 8.18 million, a decline of about 941,000 from a year ago. That is the second-lowest reading since President Joe Biden entered office.
In a bright spot for the economy, and something that the Biden administration and Harris campaign tout, the economy has been expanding at a healthy pace, given the high-interest-rate environment.
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U.S. gross domestic product, a broad measure of economic output, grew at a strong 2.8% seasonally adjusted annual rate in the second quarter of this year, the Bureau of Economic Analysis reported Thursday in a preliminary estimate.
For context, the economy expanded at a 1.4% rate in the first quarter of this year.