The Chair of the Federal Reserve, Jerome Powell, has signaled that the Fed is now prepared to start cutting the interest rate, saying in a speech at the Federal Reserve Board’s meeting in Jackson Hole, Wyoming, that “the time has come.”
The current rate, which is at a 23-year high, was repeatedly raised by the Fed since inflation spiked two years ago. The goal of the rate hikes was to help bring inflation down to 2 percent – currently, it’s sitting at 2.5 percent according to the Fed’s preferred method of measuring inflation. However, inflation remained stubbornly high through much of the last two years, and several job reports throughout that period also indicated that jobs and wages were running hotter than expected.
But several of those jobs reports have since been revised downward. What’s more, the most recent Labor Bureau statistics showed the remaining measurements were overinflated by nearly 1 million jobs. Recent job numbers sent the stock market into a mini-panic, and the Fed is now working to prevent an abrupt and major labor cooldown.
This was a forceful, unambiguous speech. The goal now is preventing further deterioration in the labor market.
— Joe Weisenthal (@TheStalwart) August 23, 2024
In his speech from Jackson Hole, Powell didn’t immediately commit to a rate cut in September, but he did strongly hint at it.
“The time has come for policy to adjust,” Powell said. “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.”
“We will do everything we can,” he later said, “to support a strong labor market as we make further progress toward price stability.”
The Fed has been attempting to pull off an economic “soft landing” – navigating the nation’s economy through an inflation crisis without causing a recession, which economists said would happen if interest rates were raised too quickly over a short period of time. Government officials believed that soft landing is still possible, though the rapid cooling of the labor market (and the revelation of inflated job numbers) have caused more concern that we may not be clear of a recession yet.
However, the stock market reacted accordingly when Powell hinted at future rate cuts.
Stocks surging pic.twitter.com/fBEMmKRN2y
— Joe Weisenthal (@TheStalwart) August 23, 2024
However, expectations were high that Powell was going to make the announcement about rate cuts at today’s meeting. It’s hard to imagine the market doing anything else in this scenario. In fact, had Powell remained silent on rate cuts, the market very surely would have tanked today, sparking more fears of economic instability.
As of now, the Fed is expected to begin cutting rates in September, with some prediction the could cut by has much as 50 basis points, or half a percent.
