In a highly anticipated speech at Jackson Hole, Wyoming, Federal Reserve chair Jay Powell indicated that the Fed is prepared to lower US interest rates in September. Powell emphasized the need for policy adjustments due to increased “downside risks” to the labor market.
He stated, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” Powell reassured that the Fed is committed to supporting a strong labor market and making progress towards price stability.
These remarks, delivered at the Kansas City Fed’s annual symposium, mark Powell’s strongest signal yet that the central bank will soon cut interest rates from their current level of 5.25-5.5 percent. This decision comes ahead of the Fed’s next meeting in mid-September, just weeks before the US presidential election.
Market reactions to Powell’s speech were positive, with Wall Street stocks rising and investors expecting further rate cuts. The S&P 500 saw a 1.1 percent increase, nearing its all-time high from July.
Looking at bond markets, the two-year Treasury yield dropped, reflecting lower interest rate expectations. The dollar also weakened against a basket of currencies. Market indicators now suggest a 33 percent chance of a larger half percentage point rate cut next month.
While some, including Republican nominee Donald Trump, have cautioned against rate cuts, others believe the Fed has been slow to act, increasing recession risks. Powell’s focus on supporting the labor market and maintaining inflation stability aligns the US central bank with global peers who have also eased monetary policies.
As Powell highlighted the decline in inflation and expressed confidence in achieving the Fed’s 2 percent goal, he emphasized the importance of avoiding further weakness in labor market conditions. The Fed remains prepared to respond to any risks that may arise.
Additionally, Powell announced an upcoming review of the Fed’s monetary policy strategy, signaling openness to new ideas while building on the strengths of the current framework.