Federal Reserve Chairman Jerome Powell sent a blunt message to markets in a major speech on Friday, saying “it’s time” for the central bank to start cutting interest rates.
“It’s time to adjust policy,” Powell said at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
“The direction we are heading is clear,” Powell said. “The timing and pace of any rate cuts will depend on upcoming data, changing outlook, and the balance of risks.”
Powell’s speech came just three weeks after the Fed’s Sept. 17-18 meeting, where it is expected to announce its first interest rate cut since 2020.
In his speech, Chairman Powell acknowledged the recent weakness in the labor market and said the Fed “does not seek or welcome a further weakening in labor market conditions.”
The July jobs report released earlier this month shook the markets, with just 114,000 jobs added to the economy last month and the unemployment rate rising to 4.3%, the highest level since October 2021. Data earlier this week also showed that the U.S. economy lost 818,000 jobs as of March, suggesting the report may have overstated the strength of the job market over the past year.
“The labor market does not seem likely to be a source of rising inflationary pressures in the near term,” Powell said.
Ahead of Powell’s speech, investors were pricing in a nearly 100% chance that the Fed would cut rates next month, with roughly 2-to-1 odds of a 0.25% cut versus a 0.50% cut.
Read more: Fed forecast for 2024: Experts discuss chances of rate cut
“Four and a half years into the COVID-19 pandemic, the worst of the economic distortions related to the pandemic are beginning to fade,” Powell said.
“Inflation has fallen significantly. Our goal was to restore price stability while maintaining a strong labor market and avoid the sharp increases in unemployment that characterized previous disinflationary periods when inflation expectations were less anchored. While the task is not yet done, we have made considerable progress toward that outcome.”
Powell’s comments Friday were reminiscent of his Jackson Hole remarks in 2022. At the time, Powell directly assessed the economic outlook and made the case for further rate hikes.
Federal Reserve Chairman Jerome Powell strolls through Teton National Park, where financial leaders from around the world have gathered for the Jackson Hole Economic Symposium, on August 26, 2022. (REUTERS/Jim Urquhart) (REUTERS/Reuters)
“Two years ago, I stood at this podium and argued that fighting inflation could lead to pain, higher unemployment and slower growth,” Powell said.
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“Some have argued that we need a recession and prolonged periods of high unemployment to contain inflation. I have expressed my unconditional determination to fully restore price stability and to continue working toward that goal until the job is done.”
Read more: How the Federal Reserve’s interest rate decision will affect your bank accounts, CDs, loans and credit cards
Friday’s speech more or less suggests that the job is indeed done.
“Overall, the combination of the recovery from pandemic distortions, efforts to moderate aggregate demand, and anchored expectations appears to have put inflation on a sustainable path toward our 2 percent objective,” Powell said.
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