Federal Reserve’s Powell, in Dovish Jackson Hole Address, Signals ‘Time Has Come’ for Interest Rate Cuts

Chairman Jerome Powell of the Federal Reserve, in his strongest indication yet that the central bank will cut interest rates during its meeting in September, said this morning that “the time has come for policy to adjust.”In his highly-anticipated address at the Kansas City Fed’s annual conference at Jackson Hole, Mr. Powell, in typical fashion, refrained from disclosing details about the expected rate cut size. Instead he offered that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” A rate cut could serve as an important boost to Vice President Kamala Harris’s campaign as Americans grow weary with high borrowing costs — but it could also likely draw criticism from President Trump, who has argued that the central bank should not cut rates so close to an election. He has also claimed that Mr. Powell is “political” and is “going to do something to probably help the Democrats.” Mr. Powell, who has repeatedly indicated his intention for the central bank to steer clear of politics, has maintained that the Fed’s decisions are tied to economic data, not election cycles. Democrats have, however, been placing mounting pressure on the chairman to speed up interest rate cuts. The results of coming election could have an impact on Mr. Powell’s position as chairman. Trump has already indicated that if he returns to office he is unlikely to reappoint Mr. Powell. Following the news that the employment report for the year overestimated jobs growth by 818,000 jobs — the largest revision since 2009 — economists speculated whether the Fed would, come September, choose to opt for a 50 basis point interest rate cut — up from the standard 25 basis points. Mr. Powell affirmed in his speech that the labor market was weakening. “The cooling in labor market conditions is unmistakable,” Mr. Powell said. “We will do everything we can to support a strong labor market as we make further progress toward price stability,” he added. He did suggest that the Fed would be quick to act should the job market fall further. “We do not seek or welcome further cooling in labor market conditions,” he said, later noting that the labor market will be met with “an appropriate dialing back of policy restraint.” During his address, Mr. Powell did not miss out on an opportunity to underscore the central bank’s progress in taming inflation. He stated that “inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” he said. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”While inflation remains at nearly 50 percent higher than the Fed’s target rate of 2 percent — the Personal Consumption Expenditures index, the Fed’s favored figure for inflation, came in at 2.5 percent last month — Mr. Powell expressed optimism that a two percent rate is achievable. “My confidence has grown that inflation is on a sustainable path back to 2 percent,” the Fed chairman said. Wall Street rallied in response to Mr. Powell’s indication that an interest rate cut was imminent, though the major indexes had already been climbing in the trading hours before his speech. The next reading of the Personal Consumption Expenditures index will be released on August 30 and will serve as an important guide for the Fed’s rate cut decision come its next Federal Open Market Committee meeting in September. Meantime, the value of a one dollar Federal Reserve Note plunged to less than a 2,515th of an ounce of gold, mere atoms off its record low value.

Federal Reserve’s Powell, in Dovish Jackson Hole Address, Signals ‘Time Has Come’ for Interest Rate Cuts

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