Fed recap: Chair Powell gives the September rate cut signal traders were hoping for

Federal Chair Powell said a rate cut at the September meeting would be unrelated to the upcoming presidential election.

He said the central bank would be “absolutely” apolitical if it lowered borrowing costs at the meeting. But the Fed chief also cautioned against assuming that a cut was definitely happening.

“We never use our tools to support or oppose a political party, a politician or any political outcome,” Powell said.

He also said the central bank’s economic forecasts do not take into account who wins the presidency.

“We would never try to make policy decisions based on the outcome of an election that hasn’t happened yet,” Powell said. That would be “a line we would never cross.”

Powell noted November will mark his fourth presidential election at the Fed. He also emphasized that the central bank is a nonpolitical agency.

— Alex Harring

Federal Chair Powell seemed to rule out the likelihood of a 50 basis-point rate cut from the central bank.

“I don’t want to be really specific about what we’re going to do, but that’s not something we’re thinking about right now,” he said.

— Samantha Subin

The central bank is keeping a close eye on the labor market and staying vigilant for signs of a potentially sharp downturn, Fed Chair Powell said.

“We’re watching really carefully for that,” he said during Wednesday’s press conference. “We’re aware of that role, which … I would call it a statistical thing that has happened through history.”

At this point, low unemployment and a low level of layoffs suggest a “normalizing labor market,” the Fed chair noted.

— Samantha Subin

The U.S. economy today looks starkly unlike it did a year ago, Fed Chair Powell said.

The central bank raised interest rates at its July meeting in 2023. He noted that unemployment has inched higher, while the path of inflation has come down significantly.

“It was a completely different economy,” he said of a year prior.

Powell described the current economy as both “historically unusual” and a “welcome outcome for the people we serve.”

“What we’re thinking about all the time is: How do we keep this going?” he said.

— Alex Harring

Fed Chair Powell gave traders the sign they have been awaiting — a rate cut could be on the table in September, depending on the economic data.

Investors cheered the findings, sending stocks to their highs of the day. The Dow Jones Industrial Average added more than 450 points, or 1.12%, while the S&P 500 jumped as much as 2.12%. The Nasdaq Composite topped 3% at the high.

— Darla Mercado

The Fed is able to weigh prices and the labor market more equally as inflation has cooled, Chair Powell said.

“When we were far away from our inflation mandate, we had to focus on that,” Powell said. “Now, we’re back to a closer-to-even focus.”

On the employment front, he said indicators show the job market has gradually normalized from “overheated” conditions.

— Alex Harring

The Federal Reserve left rates unchanged on Wednesday, but Fed Chair Powell expressed in a press conference that a September rate cut could potentially be on the table.

“The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” he said.

“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 said. “If that test is met, a reduction in our policy rate could be on the table for as soon as the next meeting in September.”

— Lisa Kailai Han

Inflation and labor data continue to move into better balance, but the central bank will not cut rates until it has gained greater confidence that inflation is moving “sustainably” toward its 2% target, Fed Chair Powell said.

“The second-quarter inflation readings have added to our confidence and more good data would further strengthen that confidence,” he said.

— Michelle Fox

Fed Chair Powell indicated that Federal Reserve members are paying close attention to the recent rise in unemployment and potential weakness in the labor market.

“As the labor market has cooled and inflation has declined, the risks to achieving our employment and inflation goals continue to move into better balance. Indeed, we are attentive to the risks to both sides of our dual mandate,” Powell said.

— Jesse Pound

July’s statement from the Federal Reserve brought updated language around the labor market and inflation. Click here to see a comparison of June and July’s releases.

— Alex Harring

Traders would do well to keep their expectations in check when it comes to Federal Reserve rate cuts in 2025, notes Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

“Interest-rate markets have had a habit of getting too optimistic when it comes to rate cuts over the past two years,” he wrote in an investor note on Wednesday. “We suspect markets are overly optimistic now.”

Wren’s team sees two rate cuts this year and just one in 2025, pointing to consumer inflation that remains too high compared to the Fed’s 2% target.

“Our projection currently calls for one rate cut next year as rental apartment inflation has its typically delayed bounce late next year,” he said. “We expect the Consumer Price Index (CPI) to post a 3% gain in 2025.”

— Darla Mercado

Central bank policymakers kept interest rates at their target range of 5.25% to 5.5%, where they have been for the past year.

The Federal Reserve indicated that inflation is getting closer to its target, but gave no clear signs that a rate cut is imminent.

“In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective,” policymakers said in their postmeeting statement.

Read more from CNBC’s Jeff Cox on the Federal Reserve’s July meeting here.

— Darla Mercado

The three major averages were higher just after 1:50 p.m. ET.

The S&P 500 advanced 1.57%, while the Nasdaq Composite gained 2.36%. The Dow Jones Industrial Average rose 279 points, or 0.69%.

— Darla Mercado

Bond yields have come a long way down, even as the Federal Reserve has stood pat on interest rates.

Ahead of the Federal Reserve’s July rate decision, the yield on the 10-year Treasury note slid to about 4.11%, its lowest level since March 12 when it was 4.081%. Though that is just a three basis-point decline on the day, it is a far cry from last October when the benchmark yield touched 5% — a first since 2007.

The 2-year Treasury yield also hovered around 4.36%, little changed on the day. Back in April, however, the rate on this note topped 5%, spurred by worries over labor costs.

Investors who have been holding onto these risk-free bonds have been capturing attractive income since the Federal Reserve has kept rates high. Bond yields and prices have an inverse relationship. However, as bond yields fall, investors can expect to see price appreciation from that corner of their portfolio.

— Darla Mercado, Gina Francolla

Investors are looking past the Federal Reserve’s policy decision for July, instead fixing their gaze on the central bank’s outlook for rate cuts.

The Fed is widely expected to keep a steady hand on interest rates at the conclusion of its meeting on Wednesday, keeping its benchmark rate at a range of 5.25% to 5.5%, where they have been for the past year.

Traders will turn toward the central bank’s postmeeting statement and listen closely to Fed Chair Jerome Powell’s press conference for details on whether rate cuts can start in September. Indeed, fed funds futures trading suggests a 100% likelihood that policymakers will ease on rates at that meeting.

Read more from CNBC’s Jeff Cox on what investors should look for at the end of Wednesday’s meeting.

— Darla Mercado