In his highly anticipated keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming on Friday, Federal Reserve Chair Jerome Powell hinted at potential interest rate cuts in the future, without specifying the exact timing or extent.
Powell acknowledged the need for policy adjustments, emphasizing that the direction towards rate cuts is clear and will be determined based on incoming data, the evolving economic outlook, and risk assessments. He pointed out the significant progress in addressing inflation and highlighted the importance of maintaining full employment, a key aspect of the Fed’s dual mandate.
Addressing concerns about inflation, Powell noted the decline in inflation rates but stressed that the Fed’s preferred measure had not yet reached the 2% target. Despite the unemployment rate inching higher, Powell attributed it to more people joining the workforce rather than underlying economic weakness.
Market reactions were positive to Powell’s speech, with stocks rising and Treasury yields falling. Traders are anticipating a rate cut in September, with the potential for a significant reduction. The CME Group’s FedWatch indicates a 100% probability of at least a quarter-point rate cut and a one-in-three chance of a half-point cut.
While expectations are high for a rate cut next month, Powell did not specify a timeline for policy easing. The minutes from the July open market committee meeting suggested that a majority of officials support a September cut, pending no unexpected data developments. Powell reiterated the Fed’s commitment to maintaining a strong labor market and ensuring continued progress on inflation.
