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The Federal Reserve held interest rates steady Wednesday but hinted that it is nearer to easing monetary policy as it cited "some further" progress on inflation and Fed Chair Jerome Powell told reporters a September cut "could be on the table."
"We think the time is approaching," Powell said in response to a question from Yahoo Finance, noting that the "overwhelming sense" from his colleagues is that the case could be made for a cut "as soon as the next meeting" on Sept. 17-18.
Fed officials voted to keep their benchmark interest rate in a range of 5.25%-5.50%, a 23-year high. The decision was unanimous.
The fed funds rate has been in this range since last July as part of the Fed’s aggressive campaign to tamp down inflation that ballooned during the pandemic.
But Fed officials hinted in a policy statement that they are inching closer to the confidence needed to lower rates as inflation continues to cool and the job market slows.
Powell also used a press conference Wednesday afternoon to signal several times that cuts could be getting closer.
While Powell told reporters the Fed has "made no decisions about future meetings, and that includes the September meeting," he also acknowledged that "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."
If central bank officials were to see inflation falling or in line with expectations, growth remaining reasonably strong, and the labor market consistent with current conditions, Powell said, "I think a rate cut could be on the table in September."
However, he noted that if inflation proved to be stickier than anticipated, the Fed would consider that, along with other factors.
"It’s not going to be just any one thing," he added.
The hints dropped by the Federal Open Market Committee on Wednesday came in the slight changes it made to a policy statement.
When it stated that "in recent months there has been some further progress towards the Committee’s 2% inflation objective," that marked a change from the "modest further progress" cited in a prior statement.
Another sign from the statement came when policymakers noted that the risks to both sides of their dual mandate — price stability and full employment — "continue to move into better balance."
That was a change from "moved toward better balance."
Officials did maintain some cautious language, stating that “the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
They also characterized inflation as "somewhat" elevated even while reiterating it had eased over the past year.
The language changes made Wednesday came after some key Fed officials emphasized in the weeks leading up to the July FOMC meeting that they were getting closer to having confidence inflation was sustainably dropping to their 2% goal.
That confidence had slipped somewhat following hotter-than-expected inflation readings in the first quarter. But three straight months of better data have restored some optimism.
The latest reassurance came last Friday when a new reading of the Fed’s preferred inflation gauge — the core Personal Consumption Expenditures (PCE) index — showed its lowest annual gain in more than three years.
The 2.6% annual increase in the month of June was the same level as May and down from 2.8% in April. On a three-month annualized rate, core PCE dropped back to 2.3% from 2.9%.
Another inflation measure, the Consumer Price Index (CPI), has also shown progress.
On a "core" basis — which excludes volatile food and energy prices the Fed can’t control — CPI rose 3.3% year over year in the month of June. That was down from 3.4% in May and 3.6% in April.
Fed officials have also been making it clear they are paying more attention to a slowing job market, another sign that cuts were likely nearing.
The unemployment rate has ticked up for two consecutive months to 4.1% — above where some Fed officials predicted the rate would be at the end of this year.
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