(Bloomberg) -- Federal Reserve Chair Jerome Powell said an interest-rate cut could come as soon as September after the US central bank voted to leave its benchmark at the highest level in more than two decades.
"The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market," Powell told reporters Wednesday. "If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September."
His comments followed a Federal Open Market Committee decision to leave the federal funds rate in a range of 5.25% to 5.5%, a level they have maintained since last July.
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Policymakers also made several adjustments to the language of a statement released after their two-day meeting in Washington, signaling they are closer to reducing borrowing costs. Notably, the committee shifted to saying it is "attentive to the risks to both sides of its dual mandate," rather than prior wording focused just on inflation risks.
"In recent months, there has been some further progress toward the committee's 2% inflation objective," the FOMC statement said. "The committee judges that the risks to achieving its employment and inflation goals continue to move into better balance."
Officials also tempered their assessment of the labor market, noting job gains had moderated and the unemployment rate has moved up, but is still low. They said inflation has eased over the past year but remains "somewhat elevated."
Still, policymakers retained language that they didn't expect it would be appropriate to lower borrowing costs until they had gained "greater confidence" that inflation is moving toward their target sustainably.
Two-year Treasury yields moved lower and S&P 500 index added to gains on the day while the dollar remained lower. A quarter-point reduction remains more than fully priced in for September, according to futures, implying investors see some chance of a bigger move.
Still, when asked at the press conference about prospects for a half-point cut, Powell said at the press conference that it was "not something we're thinking about right now."
The changes in the statement solidify a shift in tone among several policymakers, including Powell, recognizing growing risks to the labor market. They are also likely to reinforce expectations among economists and investors for a rate cut at the central bank's Sept. 17-18 gathering.
Powell told reporters he "can imagine a scenario in which there would be everywhere from zero cuts to several cuts" over the remainder of the year, "depending on the way the economy evolves."
The Fed chief also said "there was a real discussion, back and forth, of what the case would be for moving at this meeting," adding that "a strong majority supported not moving at this meeting."
Balancing Risks
Officials have increasingly emphasized the US central bank's responsibility for fostering maximum employment, following over two years of an outsized focus on their other mandate, keeping prices stable. They now see the risks to achieving those two goals as being more balanced.
Powell emphasized that theme in the press conference, arguing the risk of an unexpected inflation pickup has gone down as the labor market has cooled, while downside risks to the labor market "are real now."
While the job market remains on solid footing overall, the unemployment rate has inched up in each of the past three months, reaching 4.1% in June, the highest level since 2021.
Additionally, hiring has slowed and become more concentrated in a handful of industries and the number of job openings relative to unemployed workers has returned to 2019 levels.
Such trends have caused some Fed policymakers to warn that any further slowing in the labor market could lead to higher unemployment, an outcome the central bank aims to avoid.
The US economy has remained remarkably resilient in the face of high rates, growing at a solid pace amid healthy consumer spending. That resilience has been key to hopes the central bank can tame inflation without sparking a downturn.
Inflation figures have also been more encouraging as of late, having resumed a downward trend toward the central bank's 2% target. Powell previously noted the figures added "somewhat to confidence" that they will continue to cool.
The Fed's preferred gauge of underlying inflation rose a tame 0.2% in June and 2.6% from a year earlier.
A number of former Fed officials and economists had urged the Fed to cut rates at this meeting, including former Fed Vice Chair Alan Blinder and former New York Fed President William Dudley.
--With assistance from Chris Middleton, Liz Capo McCormick, Vince Golle, Molly Smith and Jonnelle Marte.
(Updates with additional Powell comments beginning in ninth paragraph.)
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