Fed decided to keep interest rates unchanged on Wednesday but hinted that a rate cut could be possible at their next meeting in September, as inflation continues to align with the central bank’s 2% target.

On the news, the US dollar trimmed its losses as Fed held interest rate steady as largely anticipated

Fed officials are cautious about taking any steps that might compromise their monetary policy approach. The continuous decrease in inflation over recent months has led to a widespread belief that taming inflation is close to end.

The central bank relies on the personal consumption expenditures (PCE) price index to gauge its 2% annual inflation target. The PCE price index increased by 2.5% in June, a notable drop from over 7% in 2022.

U.S. central bankers have indicated that it would be suitable to lower interest rate before inflation fully reaches their target, considering the delay between interest rate trajectory and their impact on the economy.