JACKSON HOLE, WYOMING (AP) — With inflation Almost defeated and a cooling job market, the Federal Reserve is poised to cut its key interest rate from its current 23-year high, Chair Jerome Powell said on Friday.
Powell did not say when the rate cuts would start or how big they would be, but the Fed is widely expected to announce a modest quarter-point cut in its benchmark rate when it meets in mid-September.
“The time has come to adjust policy,” Powell said in his keynote speech at the 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.”
His reference to multiple rate cuts was the only reference to a series of cuts, as economists had predicted. Powell insisted that inflation appears after the worst price hikes in four decades hurt millions of families. Mostly under control:
“My confidence has increased that inflation is on a steady path to 2%,” he said.
Inflation eased to 2.5% last month, according to the central bank’s preferred measure, well below the peak of 7.1% two years ago and slightly above the central bank’s 2% target level.
The central bank governor said the rate cuts should keep the economy growing and keep hiring low last month. Continued growth could boost Vice President Kamala Harris’ presidential campaign, even as most Americans say they are dissatisfied with the economic record of the Biden-Harris administration, largely because average prices are higher than they were before the pandemic.
“We will do everything we can,” Powell said, “to support a strong labor market as we move further toward price stability.”
By cutting rates, he said, “there is good reason to think the economy will return to 2% inflation while maintaining a strong labor market.”
The mid-September rate cut, which comes less than two months before the presidential election, could bring unwanted political heat to the central bank, which wants to avoid getting caught up in election-year politics. Former President Donald Trump argued that the Fed should not cut rates so close to the election. But Powell has repeatedly underscored that the Fed makes its rate decisions based purely on economic data, regardless of the political calendar.
Equivalent to a claim of victory, Powell noted in his speech on Friday that the Fed had succeeded in beating the high inflation that many economists had long predicted without triggering a recession or a sharp rise in the unemployment rate.
The central bank chief attributed the pandemic’s unraveling of disruptions to supply chains and labor markets and reduced job vacancies, allowing wage growth to cool.
After the government reported this month Hiring in July was much lower than expected and the unemployment rate reached 4.3%Stock prices fell for two days, the lowest in three years, on fears the US could slip into recession. Some economists have begun speculating about a half-point Fed rate cut in September and another similar cut in November.
But last week saw healthy economic reports, including another Inflation is falling And a strong profit Retail salesAllayed those concerns somewhat. Wall Street traders now expect the Fed to cut its benchmark rate by a quarter-point in both September and November and by a half-point in December. Mortgage rates have already started to fall in anticipation of lower interest rates.
Some officials said a half-point Fed rate cut in September would be more likely if there were signs of a further slowdown in hiring.
