In a statement issued after it concluded its two-day meeting, the Fed also said that “job gains have moderated” and acknowledged that the unemployment rate has risen. The Fed is required by Congress to pursue stable prices and maximum employment, and the statement said the central bank is “attentive to the risks” to both goals, a shift after several years of focusing exclusively on combatting inflation.
Fed policymakers also chose to keep their key rate at a 23-year high of 5.3%, even as many Democratic elected officials and some economists have pushed for lower rates to bolster the economy and prevent job cuts. Republicans, including former President Donald Trump, have argued that a rate cut before the election would appear politically motivated.
Also Read: US national debt hits fresh record, surpasses $35 trillion
Before the Fed’s decision, financial market traders had priced in 100% odds that the central bank will reduce its benchmark rate at its Sept. 17-18 meeting, according to futures markets. The Fed typically seeks to avoid surprising investors with its rate decisions.
Still, the Fed repeated in its statement that “it does not expect it will be appropriate” to reduce borrowing costs “until it has gained greater confidence” that inflation is steadily falling to 2%, which clouds the timing of a rate cut.
The Fed is seeking to strike a delicate balance: It wants to keep rates high enough for long enough to quell inflation, which has fallen to 2.5% from a peak two years ago of 7.1%, according to its preferred measure. But it also wants to avoid keeping borrowing costs so high that it triggers a recession. So far, it is on track for a so-called “soft landing,” in which inflation falls to 2% without a recession.
Also Read: US President Joe Biden unveils plan for Supreme Court changes
Yet with the unemployment rate ticking higher for three months in a row, some economists have raised concerns that the Fed should have cut rates Wednesday or should cut them more quickly later this year.
“The finish line is in sight and it would be tragic for the Fed to stumble and fall, with one-tenth of a mile left in the marathon, which is what I think they would be doing if they don’t start cutting,” Bharat Ramamurti, an advisor at the American Economic Liberties Project and former economist in the Biden White House, said on a call with reporters.