Discount signal from Fed announcing interest rate decision

The US Federal Reserve (Fed) announced its interest rate decision. In line with expectations, the Fed kept interest rates unchanged at a 23-year high. The bank signaled that inflation was moving towards the target and that a rate cut was imminent. Chairman Jerome Powell stated that if confidence in inflation increases and the labor market remains strong, a rate cut could be on the table in September. The Fed kept the policy rate unchanged at its July meeting, keeping it between 5.25-5.50 percent. The rate decision was taken unanimously. Economists participating in the Bloomberg survey also did not expect a change in interest rates. The Fed has been keeping interest rates at this level since July 2023. Officials signaled that they were close to reducing borrowing costs with the easing of inflation and the cooling of the labor market. Following the 2-day meeting in Washington, officials made some changes to their rhetoric and gave the message that they were cautious about the risks in their 'dual mission' instead of focusing on 'inflation risks'. The text stated that inflation had made more progress towards the 2% target in recent months, and that risks to employment and inflation targets continued to be more balanced. The text stated that employment had slowed but the unemployment rate was still low. It was emphasized that inflation, although slowing since last year, was still slightly high. It was reiterated that it would not be appropriate to cut interest rates unless there was confidence that inflation had been sustainably brought down to the target. The Fed kept interest rates unchanged at last month's meeting, while reducing its interest rate cut expectation for this year from 3 to 1. Inflation estimates for 2024 and 2025 were revised upwards at the meeting. Messages from Powell Following the decision, Fed Chair Jerome Powell stated at the press conference that they continued to be dependent on data. Powell said that there was no prior decision for the September meeting, but that they were approaching the point of lowering interest rates. Powell stated that if confidence in inflation increased and the labor market remained strong, a rate cut could be on the table in September. The Chairman added that inflation was slightly above target and that more confidence that inflation is falling is needed for a rate cut. The highlights of Powell’s statement are as follows; “The restrictive stance in monetary policy continues. The unemployment rate remains low. Labor market data point to gradual normalization. A strong majority at the meeting supported not cutting interest rates. Inflation, employment, and the entire balance of risks will help us make our decision. The path ahead will depend on the economy. We think the time for a rate cut is approaching. The risk of a hard landing in the economy is quite low. Depending on how the economy develops, I can imagine a scenario ranging from zero rate cuts to a few rate cuts.” No change in interest rates in 8 consecutive meetings The Fed, which started interest rate hikes by completing its asset purchase operation in 2022 in the face of high inflation in the US, has implemented 11 rate hikes since March 2022 and increased interest rates by a total of 525 basis points. With its latest decision, the Fed has left the policy rate unchanged for 8 consecutive meetings, keeping it at the current range. The bank last increased the policy rate by 25 basis points in July 2023. Inflation in the US reached 9 percent on an annual basis in June 2022, the highest level since 1981, and last came in below expectations at 3 percent on an annual basis last month.