The Federal Reserve’s monetary policy committee once again held constant the federal funds rate at a top target of 5.5% at the conclusion of its July meeting.
“In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
Compared to the Fed’s June commentary, the current statement upgraded “modest further progress” from last month to “some further progress” with respect to achieving the central bank’s 2% inflation target.
Raising the goal of maximum employment up with inflation means that the Fed is now in position to lower the fed funds rate. However, the FOMC’s statement also noted (consistent with its commentary in May and June):
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
This wording is a reminder that the Fed remains data-dependent. Thus, although a reduction for the federal funds rate is in view, the timing will be data-dependent on forthcoming inflation and labor market estimates. Also keep in mind, inflation does not need to be reduced to a 2% growth rate for the Fed to cut. Rather, it just needs to be on the path to reaching that goal (likely in late 2025 or early 2026).
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