Federal Reserve Chairman Jerome Powell expressed growing confidence that inflation will soon be under control, paving the way for potential interest rate cuts next month.
During the annual meeting of global central bankers in Jackson Hole, Wyoming, Powell highlighted the significant cooling of inflation since it reached a forty-year peak in 2022. He also noted that the U.S. job market is starting to show signs of slowing down, with the unemployment rate gradually increasing. To mitigate further weakening in the labor market, Powell indicated that it is time for the central bank to consider reducing interest rates, which have remained high for over a year.
“The upside risks to inflation have diminished, and the downside risks to employment have increased,” Powell stated. “The time has come for policy to adjust.”
Investors reacted positively to the chairman’s comments, with the Dow Jones Industrial Average rising by over 300 points and the S&P 500 index gaining approximately 1%.
After implementing aggressive interest rate hikes in 2022 and 2023, the Federal Reserve has maintained its benchmark rate at its highest level in over two decades for more than a year. This has led to increased costs for loans, including car loans, business financing, and credit card balances.
Powell warned that the timing and extent of any interest rate cuts will depend on economic performance. Markets are anticipating a quarter-point reduction when policymakers reconvene in mid-September. A larger half-point cut could occur if the upcoming August jobs report, released shortly before the Fed meeting, comes in weaker than expected.