Volkswacht Bodensee - US Fed remains on pause and notes 'some further progress' on inflation

After two days of deliberations, policymakers voted unanimously to maintain the US central bank's benchmark interest rate between 5.25 percent and 5.50 percent, the Fed announced in a statement -- keeping rates at a 23-year high.

After a small uptick in inflation earlier this year, recent data suggest the Fed's mission of bringing inflation back down to its long-term target of two percent is now firmly back on track.

Its favored measure of headline inflation eased to an annual rate of 2.5 percent last month, while economic growth has remained resilient, and the labor market has come into better balance.

"In recent months, there has been some further progress toward the Committee's 2 percent inflation objective," the Fed said.

This marks a slight change in tone from its decision in June, when it noted only that "modest further progress" had been made.

"The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance," the Fed said, adding that it was "attentive to the risks to both sides of its dual mandate."

- A hint about September -

Fed Chair Jerome Powell will address reporters later Wednesday, and could use the opportunity to lay the groundwork for an interest rate cut at the following meeting in September.

But Powell will also have further opportunities over the summer to make the Fed's position clear -- including his keynote address to a gathering of top central bankers in Jackson Hole, Wyoming, next month.

Futures traders remain extremely confident that a September cut is coming, giving such a scenario a 100 percent probability, according to CME Group data.

At the most recent rate decision in June, Fed officials responded to a small uptick in inflation by lowering the number of cuts they penciled in for this year from three down to just one.

But since then, the data have painted a much better picture, and futures traders now assign a probability of around 60 percent that the US central bank will make at least 0.75 percentage-points of cuts this year, according to CME Group data.

Those cuts are expected to come in the form of three separate quarter-point moves.

If the Fed does move in September, its decision would thrust the independent US central bank into the middle of the 2024 presidential election battle between former president Donald Trump and Vice President Kamala Harris.

Trump has accused Powell -- who he nominated -- of displaying political favoritism toward the Democratic party, and suggested that he would not reappoint the central banker as Fed chair if he wins in November.

R.Fischer--VB