The Federal Reserve sees cooler inflation and slower job market, suggesting a rate cut is nearing

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The Federal Reserve says that greater progress has been made in reducing inflation to its 2% target

WASHINGTON — The Federal Reserve said Wednesday that greater progress has been made in reducing inflation to its 2% target, a sign that the central bank is moving closer toward cutting its key interest rate for the first time in four years.

In a statement issued after it concluded its two-day meeting, the Fed also said that “job gains have moderated” and acknowledged that the unemployment rate has risen. The Fed is required by Congress to pursue stable prices and maximum employment, and the statement said the central bank is “attentive to the risks” to both goals, a major shift after several years of focusing exclusively on combatting inflation.

A greater focus on the employment half of the Fed's mandate, along with cooling inflation, would support the case for a rate cut by the Fed at an upcoming meeting, perhaps as soon as September.

Fed policymakers also chose to keep their key rate at a 23-year high of 5.3%, even as many Democratic elected officials and some economists have pushed for lower rates to bolster the economy and prevent job cuts. Republicans, including former President Donald Trump, have argued that a rate cut before the election would appear politically motivated.

Before the Fed's decision, financial market traders had priced in 100% odds that the central bank will reduce its benchmark rate at its Sept. 17-18 meeting, according to futures markets. The Fed typically seeks to avoid surprising investors with its rate decisions.

Wall Street rallied on Wednesday, driven in part by bullish views on the direction of U.S. interest rates. The S&P 500 was up almost 2% following the Fed's statement.

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