Fed keeps rates steady, but acknowledges inflation progress

Investing.com -- The Federal Reserve left interest rates unchanged Wednesday, but acknowledged recent progress on inflation and cooling in the labor market, stoking investor hopes that the central bank could begin cutting rates sooner rather than later.

The Federal Open Market Committee, the FOMC, kept its benchmark ratein a range of 5.25% to 5.5%.

The Fed has kept rates unchanged over the past year as it assessed incoming data to guide policy decisions. Recent reports showing progress on inflation and easing tightness in the labor market suggest that the Fed's restrictive policies are working following a slew of bumpy inflation data earlier this year.  

The most recent measure of core personal consumption expenditure, or PCE, index, the Fed's preferred inflation gauge, showed inflation remain steady at 2.6% in the 12 months through June, and is moving toward the central bank's 2% target.

"Inflation has eased over the past year but remains somewhat elevated," the Fed said Wednesday in its July policy statement. That marked a subtle change from June, when the Fed characterized inflation as "elevated." 

The labor market, meanwhile, has now also become a focus for the Fed amid signs that labor demand and supply is coming into balance.

"The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance, the Fed added.

The incoming economic data have stoked calls on the Fed to begin rates cuts soon as September, with a rate cut now almost fully priced in, according to Investing.com's Fed Rate Monitor Tool.  

Powell’s press conference at 14:30 ET (18:30 GMT) will be closed watched for further clues on the possible path toward the first rate cut, though many expect the Fed chief to avoid committing to any timeline.