Federal Reserve officials left interest rates unchanged at their July meeting, but the head of the central bank made it clear that recent progress in lowering inflation could enable policymakers to cut interest rates as soon as their next meeting in September.

“If we do get the data that we hope, then a reduction in our policy rate could be on the table at the September meeting,” Jerome H. Powell, the Fed chair, said during a news conference on Wednesday. Mr. Powell also suggested that the Fed could make a string of reductions before the end of the year, depending on inflation and job market data.

“I can imagine a scenario in which there would be everywhere from zero cuts to several cuts, depending on the way the economy evolves,” Mr. Powell said. That remark was notable because it implied that three rate cuts were possible, which is in line with market expectations but more than the two the Fed had most recently forecast.

Mr. Powell spoke shortly after the Fed announced that it would hold rates at 5.3 percent for now — a two-decade high, where they have remained for a year.

Fed officials have been keeping interest rates elevated to slow the economy and tap the brakes on inflation but have signaled that a recent cool-down in price increases could allow them to cut rates soon. While policymakers want to make sure that they fully stamp out inflation, they also want to avoid keeping interest rates too elevated for too long, risking damage to the labor market.

Central bankers have said they want more “confidence” that inflation is down sustainably before cutting interest rates. Mr. Powell made it clear on Wednesday that recent data were giving officials that conviction — they just needed to see a continuation before lowering borrowing costs. The Fed’s next meeting concludes on Sept. 18, and Mr. Powell signaled that officials would closely monitor data leading up to that gathering as they decided whether to begin cutting.

“It’s going to be inflation data, it’s going to be the employment data, it’s going to be the balance of risks as we see it — it’s going to be the totality of all of that,” Mr. Powell said. “It’s just a question of seeing more good data.”

For investors, Mr. Powell’s comments and the Fed’s policy release reinforced a widespread expectation that rate cuts are imminent. Stocks rose during the Fed news conference on Wednesday.

“The table is set for that September rate cut, barring any surprisingly high inflation reports between now and then,” said Kathy Bostjancic, chief economist for Nationwide.

Congress has given the Fed two main jobs: It is supposed to keep inflation low and stable while maintaining a strong job market.

When inflation was painfully high in 2022 and 2023, officials were more intently focused on the price side of that equation. But price increases have come down meaningfully in recent months after a period of stickiness in early 2024. The latest report showed that the Fed’s preferred price index picked up just 2.5 percent over the year through June. That is still quicker than the central bank’s 2 percent target, but it is much slower than that measure’s recent peak in 2022, which was above 7 percent.

As inflation cools, officials have begun to pay more attention to the job market side of their mandate.

“The downside risks to the employment mandate are real now,” Mr. Powell said Wednesday. “The time is coming when it will be appropriate to dial back that level of restriction so that we can address both mandates.”

The job market has shown some early signs of weakness in recent reports. While the unemployment rate is still low by historical standards, it has ticked up. Employers have fewer unfilled job openings, wage growth has been cooling from high levels, and part-time employment has climbed somewhat.

The Fed will receive fresh job market data on Friday, when the Labor Department releases the July employment report.

“What we think we’re seeing is a normalizing labor market,” Mr. Powell said. “We’re watching carefully. If it starts to show signs that it’s more than that, we’re well positioned to respond.”

The Fed’s economic projections in June implied that central bankers could cut rates roughly every other meeting once they got started. That would lower rates to 4.1 percent by the end of next year and 3.1 percent by the end of 2026.

Fed officials will release their next set of economic projections after their September meeting, which will give a sense of whether they still think that pace of cuts is appropriate.

One complication for the Fed is that September’s meeting will come very close to the Nov. 5 presidential election. That could put the Fed in a political spotlight. Lower interest rates tend to boost the stock market and can slowly bolster economic activity.

Given that, Republicans have suggested that the Fed would be political if it cut rates in the run-up to the election, because doing so could help out the economy and give Democrats a stronger story to tell just as Americans headed out to vote.

President Biden has avoided talking about the Fed out of deference to the institution’s independence from politics. But other prominent Democrats have been urging the central bank to lower rates, and some have suggested that holding off on a move when inflation is cooling would itself be political.

Mr. Powell was asked about the election optics during his news conference, and he said the central bank did not take politics into account.

“Anything we do before, during or after the election will be based on the data” and outlook, he said. “We don’t want to be involved in politics in any way.”

By: DocMemory
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