Fed's Powell Considers September Rate Cut as US Inflation Cools

Summary

- Central bank leaves policy rate in 5.25%-5.50% range.

- Investors see Fed as 'locked and loaded' for September cut.

- Fed to hold next meeting seven weeks before U.S. elections.

- Powell says decision to be driven by data, not politics.

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WASHINGTON, July 31 (Reuters) - Federal Reserve Chair Jerome Powell indicated on Wednesday that interest rates could be cut as soon as September if the U.S. economy performs as expected. This puts the central bank near the end of its more than two-year effort to combat inflation, coinciding with the nation's presidential election campaign.

The Fed concluded its latest two-day policy meeting by maintaining its benchmark interest rate in the 5.25%-5.50% range, which was established a year ago. However, its statement softened the description of inflation and highlighted that risks to employment are now equal to those of rising prices. This neutral language opens the possibility of rate cuts after over two years of tightening credit.

Powell emphasized this point further in his post-meeting press conference, noting that price pressures are easing broadly across the economy, describing it as "quality" disinflation. He stated that if upcoming data aligns with expectations, the support for cutting rates will increase.

"If we see inflation moving down in line with expectations, growth remains reasonably strong, and the labor market stays consistent with current conditions, then a rate cut could be on the table at the September meeting," Powell said.

Republican lawmakers cautioned in a July hearing that a rate cut at the September 17-18 meeting, just seven weeks before the U.S. elections, could be perceived as a politicized move, showcasing progress on inflation and promising cheaper credit and home mortgages soon.

In response to a question on Wednesday, Powell asserted that the Fed's only consideration is the state and direction of the economy and the progress of inflation back to its 2% annual target, not the political calendar or any party's fortunes.

Powell also mentioned that some Fed policymakers considered the logic of cutting rates at this session, but "the sense of the (policy-setting) committee was not at this meeting, but perhaps at the next meeting depending on how the data come in."