The Federal Reserve held interest rates steady at 5.25-5.5 percent on Wednesday, as expected, while signaling that rate cuts could come later this year if current trends in consumer prices continue. The remarks from Fed Chair Jerome Powell represented the clearest indication yet that the rate-hiking cycle that began in 2022 has ended.
"The data we have received over the past several months suggests that the disinflationary trend we anticipated is materializing," Powell told reporters at a press conference following the Federal Open Market Committee meeting. "If that trend continues, it will likely be appropriate to begin normalizing policy."
The latest Consumer Price Index report showed that inflation fell to 3.1 percent in May, the lowest reading since March 2021. Core inflation, which excludes volatile food and energy prices, dropped to 3.4 percent, approaching pre-pandemic levels.
"Powell has effectively communicated that the Fed is ready to pivot, and markets are pricing in two rate cuts before year-end," said Morgan Stanley Chief U.S. Economist Ellen Zentner. "The question now is not whether rates will come down but how quickly."
The prospect of lower rates has boosted investor enthusiasm for growth stocks, particularly in sectors that have been most penalized by the high-interest-rate environment. Real estate investment trusts, utility companies, and regional banks all posted significant gains following Powell's remarks.