Jerome Powell, the Chair of the Federal Reserve Board, said in a speech given at the Federal Reserve Board meeting in Jackson Hole Wyoming that “the moment has arrived.”
Since inflation peaked two years ago, the Fed has raised this rate repeatedly. Rate hikes were intended to bring inflation to 2 percent. According to the Fed’s preferred way of measuring inflation, the current rate is 2.5 percent, but the inflation rate has remained high for most of the past two years.
But since then, several of these reports on jobs have been revised down. The most recent Labor Bureau stats also showed that the remaining measures were overinflated by almost 1 million jobs. The stock market was thrown into a mini panic by recent job numbers. Now, the Fed is working to prevent a sudden and major labor cooling down.
Big tip of the ol’ cap to Team Transitory right here from Powell pic.twitter.com/p9rLOP65Xm
— Joe Weisenthal (@TheStalwart) August 23, 2024
Powell did not commit to a September rate cut, but he strongly hinted at one in his Jackson Hole speech.
Powell stated that “the time has come to adjust policy.” Powell said that the direction of travel was clear. The timing and pace of the rate cut will depend on the incoming data, evolving outlooks, and balance of risks.
He said later, “We will do all we can to support a healthy labor market while we continue our progress towards price stability.”
The Fed is trying to achieve a “soft landing”, which would allow the economy to navigate through an inflation crisis, without causing recession. This was predicted by economists if rates were increased too rapidly over a short period. The government officials still believed that a soft landing was possible, even though the rapidly cooling labor market and the inflated employment numbers have raised concerns that we might not yet be out of recession.
Powell’s hint at future rate reductions triggered a reaction in the stock market.
This is a key line:
*POWELL: WE DON’T SEEK OR WELCOME FURTHER LABOR MARKET COOLING
— Joe Weisenthal (@TheStalwart) August 23, 2024
Powell’s announcement of a rate cut was expected to be made at the meeting today. In this scenario, it’s difficult to imagine that the market would do anything else. Had Powell not spoken out on the rate cut, today’s market would have been a disaster, causing more fear of economic instability.
According to current expectations, the Fed will begin reducing rates in September. Some predict that the Fed could reduce by as much as 50 basis points or half of a percent.
