Updated at 2:23 PM EDT
The Federal Reserve on Wednesday left its benchmark lending rate steady at the highest levels in more than two decades, while hinting at the chances of a September reduction amid what it described as “some” further progress in its inflation fight.
The Fed’s Open Market Committee, which sets monetary policy, held its key rate at between 5.25% and 5.5%, the highest in 22 years. The unanimous move was widely expected on Wall Street following the central bank’s two-day policy meeting in Washington.
The Committee also noted that the risks of it achieving its twin mandate of price stability and full employment were now in “better balance,” adding that it would be “attentive” to both, a mention that markets are likely to interpret as a sharper focus on the cooling jobs market.
“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%,” the Fed said in a statement. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
“The Committee is strongly committed to returning inflation to its 2% objective,” the statement added.
Investors are looking for a clear signal of a September rate cut when Fed Chairman Powell speaks to the media today in Washington.
Chip Somodevilla/Getty Images
U.S. stocks were little changed following the Fed statement, with eyes on Chairman Jerome Powell’s news conference at 2:30 pm Eastern time, with the S&P 500 last marked 92 points, or 1.7%, higher, on the session.
The tech-focused Nasdaq, meanwhile, was held its single-day gain of 2.5%, or 432 points, while the Dow was last marked 315 points to the upside.
Benchmark 10-year Treasury note yields, which have fallen around 20 basis points since the Fed’s last rate decision in June, were last marked 1 basis point higher on the session at 4.126%.
Rate-sensitive 2-year note yields, meanwhile, gained 2 basis points to trade at 4.379% as investors pared bets on a bigger September rate cut.
“A September cut will be data dependent, particularly with another two inflation readings between now and then, but as it stands it seems it would take a fairly drastic reading for the Fed not to move ahead at its next meeting,” said Lindsay James, investment strategist at Quilter Investors.
“A soft-landing still looks to be the most likely outcome for now, but Fed officials must be cognizant of the evidentially rising risks in the US economy which come at a time of both political upheaval and the threat of a regional all-out war in the Middle East,” James added. “As such, the Fed may open the door to rate cuts in September, which is largely already reflected by markets.”
Related: Fed to signal timing of first interest rate cut as inflation slows
The odds of a September reduction also improved, according to data from CME Group’s FedWatch tool, although the chances of a 50-basis-point rate cut fell to just 6.4% following the Fed statement.
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