The Chair of the American Federal Reserve, Jerome Powell, has expressed clear support for interest rate cuts, highlighting concerns about a further cooling of the labor market while maintaining confidence that inflation is heading towards the central bank’s target of 2 percent. Powell made these remarks during a keynote speech at the Fed’s annual economic conference in Jackson Hole, Wyoming.
He stated, “The positive risks for inflation have diminished, and the negative risks for employment have increased.” He further emphasized, “The time has come for policy adjustments,” stressing that the timing and pace of any interest rate changes will depend on incoming data and the evolving situation.
Powell conveyed his increasing confidence that inflation is on a sustainable path back to 2 percent after reaching approximately 7 percent during the COVID-19 pandemic. At the same time, he noted that the unemployment rate is rising, attributing this to a greater labor supply and slower hiring rates rather than to an increase in layoffs. The current unemployment rate stands at 4.3 percent, which Federal Reserve officials view as consistent with long-term stable inflation.
“We are not seeking, nor do we want, further cooling of the labor market,” Powell stated, adding, “We will do everything we can to support a strong job market while continuing to make progress toward price stability.”
Following Powell’s remarks, traders continued to expect a 0.25 percentage point rate cut at the Fed’s meeting scheduled for September 17-18. However, they have also now priced in a one-in-three chance of halving the interest rate, up from a one-in-four likelihood previously.
The market anticipates that interest rate changes will continue, with futures indicating an expected Fed policy rate in the range of 3 percent to 3.25 percent by the end of 2025, down from the current rate of 5.25 percent to 5.5 percent, which has been in effect since July of last year.
Powell’s comments are among the strongest signals he has provided regarding the central bank’s view of inflation as a situational cause and mark the beginning of a new phase in interest rate policy. The current inflation rate is measured at an annual rate of 2.5 percent, positioning Powell and the Federal Reserve to navigate changing economic conditions with proposed adjustments in the near future.
The Fed’s meeting next month will include updated economic projections, which could offer further insights into how the benchmark policy rate is expected to evolve moving forward.