Fed Keeps Interest Rates Unchanged, Showing Signs Of A Cut In September.

Federal Reserve Chair Jerome Powell indicated that the central bank is likely to cut interest rates in September unless there is a significant change in the economic outlook. This decision reflects the Fed's growing confidence in easing inflation and concerns over a weakening labor market. Although the Fed kept its key interest rate at a 23-year high of 5.25% to 5.5%, Powell's remarks suggest a shift towards reducing borrowing costs to support the economy.

Powell emphasized the importance of both sides of the Fed's dual mandate: managing inflation and maintaining a solid labor market. He noted that while the labor market remains strong, it has shown signs of slowing, with the unemployment rate rising to 4.1%. The Fed's decision will hinge on forthcoming economic data, and Powell highlighted the need for balance to avoid either reigniting inflation or delaying rate cuts too long, which could risk a recession.

The market has reacted positively, with traders fully pricing in a quarter-point cut in September and expecting further cuts throughout the year. Treasury yields have dropped, and the stock market has rallied in response to Powell's comments. Despite the progress towards the 2% inflation goal, Powell and other Fed officials are cautious, requiring more data to confirm the sustainability of this trend.

​In summary, the Federal Reserve is poised to reduce interest rates in September, contingent on ongoing favorable economic data, as it seeks to balance inflation control with the risks of a weakening labor market and potential recession.