WASHINGTON (AP) 鈥� The Federal Reserve said Wednesday that greater progress has been made in reducing inflation to its 2% target, a sign that the central bank is moving closer toward cutting its key interest rate for the first time in four years.
In a statement issued after it concluded its two-day meeting, the Fed also said that 鈥渏ob gains have moderated鈥� 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 鈥渁ttentive to the risks鈥� to both goals, a major shift after several years of focusing exclusively on combatting inflation.
A greater focus on the employment half of the Fed's mandate, along with cooling inflation, would support the case for a rate cut by the Fed at an upcoming meeting, perhaps as soon as September.
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.
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, . The Fed typically seeks to avoid surprising investors with its rate decisions.
Wall Street , driven in part by bullish views on the direction of U.S. interest rates. The S&P 500 was up almost 2% following the Fed's statement.
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 鈥渟oft landing,鈥� in which inflation falls to 2% without a recession.
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.
鈥淭he 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鈥檛 start cutting,鈥� Bharat Ramamurti, an advisor at the American Economic Liberties Project and former economist in the Biden White House, said on a call with reporters.
Also Wednesday, three Democratic senators, led by Elizabeth Warren from Massachusetts, urged Chair Jerome Powell in a letter to cut rates. The letter charged that a failure to reduce borrowing costs soon would suggest the Fed is 鈥済iving in to bullying鈥� and would itself be a political move.
In the latest piece of good news on price increases, last Friday the government said that yearly inflation in July, according to the Fed鈥檚 preferred inflation measure. That is down from 2.6% the previous month and the lowest since February 2021, when inflation was just starting to accelerate.
At the same time, the unemployment rate has risen by nearly a half-percentage point this year and hiring has slowed. Powell and other Fed officials have highlighted they are increasingly focused on the risk that the job market could falter, another reason markets expect rate cuts soon.
The government will issue the latest jobs numbers this Friday, and economists forecast that it will say employers added 175,000 jobs in July, while the unemployment rate remained 4.1%.
Christopher Rugaber, The Associated Press
