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It looks like the leaves won’t be the only things falling this fall.
In his keynote speech at the Fed’s annual retreat in Jackson Hole, Wyoming, Chair Jerome Powell gave his strongest indication yet that the central bank will cut interest rates when it next meets in September.
“The time has come for policy to adjust,” he 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.”
How large the rate cuts will be remains an open question. Traders are divided on whether they think the Fed will make a 0.25% or a 0.5% cut during its next meeting, according to the Wall Street Journal.
Powell talked up the potential for a so-called “soft landing,” without actually saying that. “There is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market,” he said.
Soft landing? Yeah, that was us: In his speech, Powell took a bit of a victory lap, crediting the Fed’s rate cuts with lowering inflation, alongside other factors such as a reversal in “pandemic-related distortions to supply and demand.”
“Anchored inflation expectations, reinforced by vigorous central bank actions, can facilitate disinflation without the need for slack” in the labor market, he said.
Now, Powell said, the Fed can turn its attention to its other mandate: maintaining a strong job market. The unemployment rate is currently 4.3%.
“The cooling in labor market conditions is unmistakable,” Powell said. He attributed the rise in unemployment to a slowdown in hiring and more people entering the workforce, not to layoffs.
Markets surged following Powell’s speech.