Fed Chairman Powell says ‘time is right’ to cut interest rates

Federal Reserve Chairman Jerome Powell on Friday hinted at a rate cut coming, though he declined to say how big or how fast it might be.

In remarks at the Federal Reserve Bank of Kansas City’s annual policy forum in Jackson Hole, Wyoming, The central bank governor “It’s time to adjust policies.”

In his roughly 15-minute speech, Chairman Powell appeared to confirm his expectation of a September rate cut, saying, “The direction is clear, and the timing and pace of any rate cuts will depend on upcoming data, changing outlook and the balance of risks.”

The Federal Open Market Committee’s current federal funds rate set for July 2023 is between 5.25% and 5.5%, the highest level in more than two decades. Powell said the current level leaves “ample room” to respond to risks while appropriately “easing” policy restraints.

About the shoot Tightening of monetary policy Over the past two years, the FOMC has sought to contain inflation that has risen well above the Fed’s 2% target. “While the task is not yet done, we are making substantial progress toward that outcome,” Powell said in a speech at the Fed’s annual meeting on the Fed’s website.

This approach has helped restore a supply-demand balance, “mitigating inflationary pressures and keeping inflation expectations well anchored,” he said. Inflation remains above the Fed’s target, but it has been declining consistently in recent months.

“We are increasingly confident that inflation is on a sustainable path toward 2 percent,” Powell said.

Meanwhile, with the labor market cooling, with the unemployment rate at 4.3%, nearly a percentage point higher than in early 2023, “we do not seek or welcome a further weakening in labor market conditions,” Powell said. The Fed remains “minded to risks on both sides,” and “downside risks to employment have increased,” he noted.

Reflecting on lessons learned

Chairman Powell also spent a few minutes reflecting on factors unique to the economy during the COVID-19 pandemic, including the surge in consumer goods spending and Russia’s aggression in Ukraine, and the FOMC’s thinking during this time.

Like many others who jumped on the bandwagon, which Chairman Powell called “temporary,” the Fed initially decided that inflation was temporary, and that “the data will be grim” contrary to that assumption, necessitating a strong policy response.

“It feels like I have some ex-shipmates here today,” Powell joked, drawing laughter from the crowd.

The Fed was “committed” to preventing inflation from taking hold like it did in the 1970s, so its actions were “It was a powerful demonstration of determination to control it.” He said.

Chairman Powell seemed to praise the FOMC, saying,A welcome and historically unusual outcome.” Some forecasters predict that inflation will fall even as unemployment remains low, a finding he linked to “anchored inflation expectations,” which reflects public confidence that the Fed will keep inflation in check.

He said supply and demand imbalances and shocks in energy and commodity markets during the pandemic led to high inflation, and reversing that was key to lowering inflation, but that it took longer than expected. Moreover, the labor market easing has been driven primarily by the normalization of very high employment levels without widespread layoffs.

While some believe that taming inflation requires space in the economy, particularly in the labor market, “a key lesson from recent experience is that anchoring inflation expectations, reinforced by aggressive central bank action, can foster deinflation without the need for space,” Powell said.