US Fed Chairman signals interest rate cuts

US Federal Reserve Chairman Jerome Powell made the most direct signal on interest rate cuts since the start of the current tightening cycle. He, however, did not provide any indications on when the reductions would come.

"The time has come for policy to adjust," Powell said in a highly anticipated speech to the Kansas City Fed's annual economic conference in Jackson Hole, Wyoming. "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."

The progress made in containing inflationary pressures opened the door for the Fed to shift its focus equally to the other side of its dual mandate goals of economic maximum employment and restore price stability while maintaining a strong labor market and avoiding the sharp increases in unemployment that characterized previous disinflation cycles when expectations were less stable. While the mission is not yet complete, we have made significant progress toward that outcome,” he added.

Inflation has eased substantially from a peak of 7 percent to 2.7 percent but is still too high. We are strongly committed to returning inflation to our 2 percent goal in support of a strong economy that benefits everyone.

Powell elaborated on the causes of inflation, which reached its highest levels in decades during its peak, although when it first started to rise in early 2021, the Fed chairman and many policymakers and experts said it was a “temporary” increase caused by the pandemic.

But today he reiterated that high inflation was a “global phenomenon,” the result of rapid increases in demand for goods, strained supply chains, tight labor markets, and sharp increases in commodity prices.