General
The Big Number: 5.25%
The Federal Reserve left interest rates at a two-decade high, but all the attention was on what it will do next.
Federal Reserve officials on Wednesday left interest rates unchanged at 5.25 percent, keeping rates at their highest level in two decades.
But that fact went relatively unnoticed, largely because Jerome H. Powell, the Fed chair, opened the door to cutting rates in September and suggested there could be more cuts this year if inflation continued to ease. The Fed had most recently predicted just two rate cuts for the remainder of the year.
“I can imagine a scenario in which there would be everywhere from zero cuts to several cuts, depending on the way the economy evolves,” Mr. Powell said.
The financial markets rallied on the news.
To tame inflation that was painfully high, the Fed began raising borrowing costs in March 2022. The higher rates have not had much of an effect on wealthier households, which have benefited from rising housing prices and increases in their investments. But poorer people have been pinched by double-digit credit card interest rates and higher food costs and rents.
After a sustained period of moderating inflation, it seemed as if the Fed was ready to start cutting rates again in early 2024. But that progress appeared to stall after prices crept higher in March than economists expected. Some questioned whether there would even be a single rate cut this year.
But cooler inflation reports since then have restored hope for rate cuts: Year-over-year inflation was 3 percent in June, less than what economists expected, and wage growth slowed.
“The table is set for that September rate cut, barring any surprisingly high inflation reports between now and then,” said Kathy Bostjancic, chief economist for Nationwide Mutual Insurance Company.
