The Federal Reserve held stable interest rates between 4.25% and 4.5% on Wednesday. This is exactly the same as interest traders’ bets were projected after a policy-making body meeting in June.
Traders’ bets predict that there is a good chance that the Fed could cut interest rates at its September 17th meeting. This means that Americans will not reduce short-term interest rates, which are heavily influenced by the Fed’s decisions, for a few weeks.
Two-thirds of interest rate traders bet on the cut in interest rates in September, ahead of the Fed’s announcement, according to the CME FedWatch tool. Just two hours after the decision, many rate-cut bets shifted to October. The FEDWATCH tool tracks the possibility that the Fed will change federal funding rates based on futures prices.
Will the Fed lower interest rates?
The Fed’s policy making committee has not cut short-term interest rates since its December meeting cut by 0.25%.
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In his comments following Wednesday’s meeting, Fed Prime Minister Jerome Powell told reporters that neither he nor the others on the Policy Committee have a pre-determined plan for interest rates following the Sept. 17 meeting.
“We didn’t make a decision about September. We won’t do that in advance,” Powell said, adding that the Fed will receive two rounds of employment and inflation data to inform the assessment ahead of the next meeting.
Will interest rates fall in 2025?
President Donald Trump’s tariff proposal puts the Fed in a difficult position. Inflation caused by the Covid-19 pandemic has eased, but consumer prices could rise again. Inflation was marked slightly in May and June. The annual rate rose to 2.7%. Analysts suggest that lower energy prices can help minimize the impact of tariffs.
With many details remaining unresolved, it remains uncertain how many tariffs will raise prices in the coming months. If we lower interest rates before it becomes clear how the Federal Reserve will affect our involvement in the prices we pay, it can unintentionally cause inflation.
The Fed tries to stabilize inflation at around 2% each year while hiring as many Americans as possible. The June employment report showed that the unemployment rate fell to just 4.1%, with the economy adding 147,000 jobs. The Bureau of Labor Statistics will look at U.S. employment next Friday morning.
Current unemployment rate
Other indicators also suggest that the economy remains relatively strong, but Powell warned after a May meeting that recent inflation and employment data could be indicators of early signs of concern. However, he said the uncertainty surrounding tariffs and the economic impact have led them to avoid changing interest rates.
“I think there’s a lot of uncertainty about tariff policies, for example, that’s calming down,” Powell said. “If they settle down, what will the impact on the economy for growth and employment? I think it’s too early to know.”
Contribution: Bailey Schultz
