Fed clears way for US rate cuts as early as next month as inflation falls to 2%

US Federal Reserve Chairman Jerome Powell last night opened the door to lowering interest rates in the United States as early as next month.

Powell said the US economy is moving closer to a rate cut, but cautioned that this is not yet the case.

The US central bank has voted unanimously to keep its key interest rate within a range of 5.25 percent to 5.5 percent, a level it has held since July last year.

A spokesman for the Federal Open Market Committee, which sets interest rates, said last night that “some further progress” had been made toward the central bank’s 2 percent inflation target but that “more confidence” was still needed.

US inflation has been falling steadily for several months and is moving closer to the Fed’s 2 percent target.

At the same time, the labor market has cooled, with the unemployment rate rising by about half a percentage point this year to 4.1 percent.

Powell told reporters: “The policy rate cut could happen as early as September.”

Rate cuts could help the Fed engineer a “soft landing,” bringing down high inflation without triggering a recession.

But the decision to proceed was widely expected.

Christopher Waller, a member of the Fed’s board of governors, said last month: “While I don’t believe we’ve reached our end goal, I do believe we’re getting closer to the point where a policy rate cut is warranted.”

Omair Sharif of analyst firm Inflation Insights called the statement “a small step towards a rate cut in September”.

The Fed’s decision last night comes ahead of the Bank of England meeting, where authorities are also expected to leave interest rates unchanged.

The nine-member Monetary Policy Committee (MPC) meets today to vote on whether to cut interest rates for the first time in four years.

The bank faces a tie-breaking vote, with Governor Andrew Bailey, the group’s chairman, expected to make the final decision.

Analysts at investment bank Citigroup expect interest rates to fall by a quarter point to 5 percent, a huge relief for millions of homeowners.

Powell is expected to speak later this month at the annual central bank conference in Jackson Hole, Wyoming.

The Fed’s September meeting is the last before the November presidential election. Former President and Republican candidate Donald Trump has already said the Fed should not cut rates before the election.