Fed Holds Interest Rates Steady at 5.50%, Hints at Possible September Cut

US central bank floated the idea of lowering borrowing costs at its September meeting, spurring a rally in stocks.

• The US Federal Reserve maintained the benchmark interest rate USINTR at 5.50% at its meeting on Wednesday. This wasn’t exactly news as it was already communicated and baked into prices across markets. The actual news — Fed officials hinted they were clearing the path for an interest rate cut at their next meeting slated for mid-September. Still, the US central bank is data dependent and will continue monitoring incoming reports on the economy.
• But so far, the news stream has been in favor of a rate cut — inflation has eased notably, even though it’s still above the Fed’s 2% target. And the labor market has gotten tighter, suggesting that it may be appropriate to let the economy breathe more easily with a 0.25% cut to borrowing costs. To this end, Fed chief Jay Powell said at his press conference that a September rate cut was “on the table” if price pressures continued to cool.
• The reactions across the board were a mixed bag. The Dow Jones Industrial Average soared more than 400 points while the Fed boss was still delivering his remarks and fielding questions. In forex, the dollar was more or less unfazed by what was going on with the EUR/USD floating fairly flat on the day at $1.0830. Gold prices propelled higher on the prospects of lower rates, which are generally beneficial to gold’s appreciation.