For the first time in definitive terms, Federal Reserve Chair Jerome Powell said it is time to cut rates after witnessing “unmistakable” cooling in the labor market. Powell made the remarks Friday, Aug. 23, at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
“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 to support a strong labor market as we make further progress toward price stability with an appropriate dialing back of policy restraint,” Powell added. “There is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.”
Despite the optimism, the labor market is undoubtedly slowing. In July, the unemployment rate spiked up to 4.3%, triggering a recession indicator. And the latest Labor Department revisions showed the Bureau of Labor Statistics overestimated job growth by 818,000 for jobs added throughout the year ending in March.
“The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions,” Powell said.
Given the remarks, markets are practically using permanent ink to mark a September rate cut. The Federal Open Market Committee, which sets the overnight lending rate, will meet three more times this year. Powell left the size and pace of rate cuts open to interpretation.
“My confidence has grown that inflation is on a sustainable path back to 2%,” Powell said.
