In his highly anticipated keynote speech at the Fed’s annual meeting in Jackson Hole, Wyoming, on Friday, Federal Reserve Chairman Jerome Powell hinted at possible future interest rate cuts, but did not specify the exact timing or extent.
Powell acknowledged the need for policy adjustments, stressing that the direction of rate cuts is clear and will be determined based on incoming data, the evolving economic outlook and risk assessments. He pointed to significant progress in fighting inflation and stressed the importance of maintaining full employment, a central aspect of the Fed’s dual mandate.
Powell addressed inflation concerns, pointing to the decline in inflation rates but stressing that the Fed’s preferred policy has not yet reached the 2% target. Although the unemployment rate is slowly rising, Powell attributed this to the rising number of people in the labor force rather than any underlying economic weakness.
Market reactions to Powell’s speech were positive. Stock prices rose and US Treasury yields fell. Traders are expecting a rate cut in September, with the potential for a significant cut. According to CME Group’s FedWatch, the probability of a rate cut of at least a quarter of a percentage point is 100%, and the probability of a half-percentage point cut is one in three.
Although expectations are high for a rate cut next month, Powell did not provide a timetable for easing monetary policy. Minutes from the July Federal Open Market Committee meeting suggest that a majority of Fed officials favor a rate cut in September, barring unexpected developments in data. Powell reiterated the Fed’s commitment to maintaining a strong labor market and ensuring continued progress on inflation.