The Federal Reserve held interest rates steady at a range of 5.25 to 5.5 percent Wednesday amid growing speculation that the central bank would start rate cuts later this year.
Markets had been expecting the Fed to keep rates where they are as inflation continued to fall over the summer, but not quickly enough to spur the central bank to ease its policy. The CME FedWatch prediction algorithm, which is based on futures contract prices, put the odds of a July rate cut at just 3 percent in the hours before the meeting.
Stocks rallied ahead of the decision, with the Dow Jones Industrial Average of big U.S. companies up more than 200 points in morning trading.
The Fed has maintained rates at their current level since last August in response to elevated inflation, which proved stickier than expected in its descent over the past two years.
After falling precipitously from its peak around 9 percent in June of 2022, inflation had remained above 3 percent for the last year before finally dipping beneath into the 2-percent range in June.
Prices deflated for the first time in June, dropping by 0.1 percent from May to hit an annual rise of 2.98 percent, as reported by the Federal Reserve Bank of St. Louis.
The June jobs report from the Labor Department revealed weaker employment levels behind recent price data, with the number of jobs added to the economy in April revised down to 108,000 and jobs added in May to 208,000 for a total of 111,000 fewer jobs than previously reported. The unemployment rate also ticked up to 4.1 percent, its first time above 4 percent since 2021.
Fed Chair Jerome Powell acknowledged earlier this month that central bankers had to be wary not only of sticky inflation but of an unexpected uptick in unemployment as a result of tighter labor conditions.
“We are well aware that we now face two-sided risks,” he told lawmakers earlier in July.
