Volkswacht Bodensee - US Fed's Powell flags cuts 'as soon as' September

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 said a statement -- keeping rates at a 23-year high.

But speaking to reporters in Washington shortly after the decision was published, Fed Chair Jerome Powell said the first interest rate cut could come "as soon as" the Fed's next rate meeting in September.

"The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate," he said, adding that there had been a "really significant decline in inflation."

"The Fed has laid the foundations for a September easing, provided the next two CPI (consumer inflation) reports give no cause for alarm," Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a note after the decision was announced.

- 'Some' further inflation progress -

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."

- Pointing in right direction -

Powell said recent economic data "continue to point to kind of the direction we would want to see."

"The time is coming at which it will begin to be appropriate to dial back that level of restriction," he continued, while adding that the Fed would remain attentive to the incoming data.

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 previous 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 70 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 previously 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.

But speaking on Wednesday, Powell insisted that the Fed would never use its tools to support or oppose a political party or any politician.

"We would never try to make policy decisions based on the outcome of an election that hasn't happened yet," he said. "That would be a line we would never cross."

K.Hofmann--VB