US Fed holds rate, signals possible September cut

The US Federal Reserve kept its target interest rate unchanged at a 23-year high today while signaling a September rate cut "could be on the table" if inflation continues on its easing trajectory.

The Fed's Federal Open Market Committee (FOMC) held the federal funds target rate unchanged at 5.25-5.5pc. The Fed has held rates unchanged since July 2023 after hiking them by 5.25 percentage points from March 2022 in the steepest course of hikes in four decades.

"We're getting closer to the point at which it will be appropriate to begin to dial back restriction," Fed chairman Jerome Powell said after the meeting. "If we get the data that we hope we get, a reduction in the policy rate could be on the table at the September meeting."

The decision to keep rates steady was widely expected.

Following today's meeting, the FedWatch tool, which tracks fed funds futures trading, projected an 81.6pc probability of a quarter point cut at the September FOMC meeting and an 18.2pc chance of a half point cut, compared with 86.3pc chance of a quarter point cut and a 13.2pc probability of a half point cut a day earlier.

The Fed has been battling to rein in inflation, which saw the consumer price index surge to a four-decade high of 9.1pc in June 2022 because of supply chain disruptions caused by the global economic reopening following the Covid-19 pandemic.The Fed's favorite inflation gauge, the Personal Consumption Expenditures (PCE) price index, fell to an annual 2.5pc in June, close to the Fed's long range target of 2pc. The unemployment rate has risen to 4.1pc in June from 3.5pc in July last year.

By Bob Willis