At 2:00 am Beijing time on Thursday, the Federal Reserve announced its latest interest rate decision. As expected by the market, the central bank still maintains the benchmark interest rate between 5.25% and 5.5% unchanged, which is the highest level in more than 20 years.
After the resolution was announced, there was no significant fluctuation in the three major US stock indices, with the US dollar index rising 10 points in the short term and spot gold falling nearly 6 dollars in the short term.
This is also the eighth consecutive time that the Federal Reserve has kept interest rates unchanged. The Federal Open Market Committee (FOMC) stated in a post meeting statement that US job growth has slowed down and the unemployment rate has risen, but remains low.
The Federal Reserve has not promised to cut interest rates in September, reiterating that although further progress has been made in combating inflation, it will not cut interest rates until there is greater confidence in inflation. The FOMC meeting statement is somewhat hawkish, but investors are more concerned about the upcoming press conference, and Powell may signal a rate cut in September.
It is worth noting that the Federal Reserve has removed the phrase 'highly concerned about inflation risks' and replaced it with policymakers now' concerned about the risks posed by its dual mission, 'which includes Congress' requirement to maintain maximum employment while maintaining price stability.
In addition, the Commission will continue to reduce its holdings of U.S. treasury bond bonds, institutional debt, and agency mortgage-backed securities. If there are risks that may hinder the achievement of the goals, the committee will be prepared to adjust the monetary policy stance at its discretion.
Several officials from the Federal Reserve have previously stated that considering the time required for monetary policy to have an impact on the economy, it is appropriate to reduce borrowing costs before inflation truly returns to target levels. Federal Reserve Chairman Powell said earlier this month, "Rising inflation is not the only risk we face
Although the overall job market remains stable, the unemployment rate rose to 4.1% in June, the highest level since the end of 2021. If this trend continues, it may help curb inflation expectations.
In addition, recruitment has slowed down and become more concentrated in a few industries, with a job vacancy to unemployment ratio of 1.2 in June, which has returned to the level of 2019.
Considering that the unemployment rate has been consistently high, policy makers have recently focused more on avoiding a sharp increase in unemployment rates. This shift means that the Federal Reserve may start cutting interest rates as early as its next policy meeting in September, thereby easing the heavy borrowing cost pressure on American households and businesses.
Nick Timiraos, the spokesperson for the Federal Reserve, commented that there was no clear signal at this meeting that a rate cut will be made in September, but there were some very meaningful changes in the first half of the statement: the dual task is back, and inflation has dropped from "high" to "somewhat high".
Timiraos added that the Federal Reserve's statement stated that "the committee is concerned about both aspects of its dual mission." The statement removed the wording described by policymakers over the past two years as "highly concerned" about inflation risks. This shift is significant as it indicates that inflation may no longer be a barrier to interest rate cuts, especially as the labor market continues to cool down.
Key Wealth analyst Rajeev Sharma believes that the Federal Reserve's policy statement today opened the door for a rate cut in September, but did not make a commitment to a rate cut.
LPL Financial analyst Quincy Krosby stated that the positive market response indicates that both traders and investors believe the Federal Reserve will relax policy at its September meeting as inflation continues to decline.