The Federal Reserve kept the policy interest rate unchanged Wednesday at 5.25%-5.5% at its July Federal Open Market Committee (FOMC) meeting, with the statement that inflation has seen further recent improvements toward the Fed's 2% goal.

Despite these improvements, policymakers did not suggest that an interest rate reduction is imminent, emphasizing the need to continue relying on economic data.

The statement's opening paragraph, similar to June's, notes that recent indicators show economic activity expanding at a solid pace. Job gains have moderated, and the unemployment rate has risen slightly but remains low. While inflation has decreased over the last year, it remains somewhat elevated.

The Fed reiterated that the risks to achieving its employment and inflation goals have moved toward a better balance over the last year.

Regarding forward guidance, the Committee said it would carefully assess incoming data, the evolving outlook and the balance of risks before making any adjustments to the target range for the federal funds rate. The FOMC said it does not foresee reducing the target range until there is greater confidence that inflation is moving sustainably toward 2%.

Fed Chair Jerome Powell's press conference, scheduled at 2:30 p.m., will as always be closely watched by market participants to gauge for any hints on a September rate cut and his assessment about the latest economic data.

Markets are fully pricing in a September interest rate cut, assigning a 90% chance for a 25-basis-point move and a residual 10% chance of an even larger rate cut.

Market Reactions

Minutes after the July FOMC statement was released, stocks held their session gains and the dollar saw a slight recovery.

• The U.S. Dollar Index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), rose to 104.35 levels, recovering from sharper losses during the day.
• The S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), was up by 1.5% for the session, broadly steady.
• The tech-heavy Nasdaq 100, as monitored through the Invesco QQQ Trust (NASDAQ:QQQ), was 2.6% higher, also unchanged.
• Gold prices saw a slight dip, with bullion inching down to $2,420 per ounce, yet still showing a positive gain of 0.5% for the day.
• Treasury yields inched slightly higher in the short-end of the curve, with the two-year Treasury yield up by 2 basis points to 4.38%.

Jerome Powell and Wall Street illustration. Photo: Federalreserve and Flickr.