The Fed, in the FOMC meet, decided to leave the base rate unchanged at 5.25% to 5.50%. The Fed statement reads like this – even as “there has been some further progress toward the Committee’s 2 percent inflation objective”, it still “remains elevated”. The statement reiterated the Fed’s commitment to achieve the inflation objective.
Inflation has eased considerably from the highs of around 9% witnessed two years back and over the last twelve months is stable around the 3% mark. Along with the headline inflation numbers, the second data point that the Fed actively tracks is employment numbers. In line with the intended impact of policy actions, the unemployment numbers have inched up. The development on inflation and unemployment front led to the Fed stating that, “the Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance”.
Further, the statement introduced a line, “the Committee is attentive to the risks to both sides of the dual mandate”. This addition to the FOMC statement, and the mention by the Fed Chair in his press conference that a rate cut in its September meeting is on the table, stoked market expectations of a potential rate cut. While a status quo in the current meeting was widely expected, the market participants were actually looking out for signals of any upcoming rate cut; and the Fed didn’t disappoint.
