Fed Holds Rates Steady as Softer Inflation Raises Odds of December Cut

The Federal Reserve kept interest rates unchanged at 4.75% to 5.00% on Wednesday, while signaling that a rate cut could be considered as soon as December if inflation continues to ease. The decision came after new U.S. consumer price data showed inflation cooling to 2.3% year over year, below economists’ expectations and closer to the Fed’s 2% target.

In remarks following the policy announcement, Chair Jerome Powell said the central bank has made meaningful progress in bringing inflation down, but stressed that future decisions will remain dependent on incoming economic data. He noted that policymakers want to see more evidence that price pressures are continuing to moderate before moving to lower borrowing costs.

The latest inflation reading strengthened market expectations that the Fed may begin easing policy later this year, especially if labor market conditions remain stable and economic growth slows modestly. Investors responded quickly to the announcement, with the U.S. dollar index falling 0.5% as traders adjusted their outlook for interest rates.

The Fed’s cautious stance reflects its effort to balance progress on inflation with the risk of cutting rates too soon. While officials appear more confident that inflation is moving in the right direction, they have made clear that any policy shift will depend on the data.