As expected, the FED left interest rates unchanged.
At 2:30 p.m. today, Federal Reserve Chair Jerome Powell will take the stage for a news conference, poised to address recent developments in labor costs and their implications for monetary policy.
In an unexpected twist, U.S. labor costs have come in weaker than anticipated for the last quarter. According to the Bureau of Labor Statistics, compensation costs for all civilian workers—encompassing both private and government sectors—rose by 0.9% during the three months ending in June. This figure falls short of the 1% growth projected by economists surveyed by FactSet and represents a decline from the 1.2% increase seen in the previous quarter.
This softening in labor costs may signal a potential shift in interest rate policy. The Federal Open Market Committee (FOMC) has maintained the federal-funds rate target at a range of 5.25% to 5.5% since July 2023. With inflation showing signs of deceleration and the labor market normalizing, the Fed is now aiming for a delicate balance to achieve a rare soft landing for the U.S. economy.
The FOMC’s next meeting is scheduled for September 17-18, and market participants are closely watching for indications of a potential policy shift. Current interest-rate futures market pricing suggests an 88% probability of a quarter-point rate cut in September, with a 12% chance of a half-point reduction. In response to these expectations, bond yields have notably decreased since spring.
