Powell Confirms Fed’s Rate Cut Pivot at Jackson Hole | ORBITAL AFFAIRS

Federal Reserve Chair Jerome Powell announced in a speech at the Jackson Hole Economic Policy Symposium conference that the Fed is ready to start cutting its benchmark interest rate. This move comes as the Fed shifts its focus from fighting inflation to preserving the labor market. Powell stated that the timing and pace of rate cuts would depend on economic data going forward.

The Fed’s decision to cut interest rates is a significant shift in its economic balancing act. The central bank aims to keep the fed funds rate high enough to prevent inflation from overheating while also keeping unemployment from rising. The current range of the rate is 5.25%-5.5%, its highest since 2001. However, with inflation cooling down close to the Fed’s goal of a 2% annual rate and an uptick in unemployment, Powell believes it is time for policy to adjust.

The Fed was widely expected to cut the fed funds rate at its next policy committee meeting in September. Recent economic data has shown a decrease in the inflation rate from a 40-year high to pre-pandemic levels. At the same time, the unemployment rate has steadily risen, raising concerns about a potential recession if interest rates remain high.

Financial market participants interpreted Powell’s comments as a signal that steeper rate cuts are on the table. Speculation has focused on whether the Fed will begin its rate cut campaign with a 0.25 percentage point cut or a steeper 0.5 percentage points. The odds of a larger cut rose to 34.5%, according to the CME Group’s FedWatch tool.

During his speech, Powell also discussed the Fed’s fight against inflation since March 2022. The central bank began raising its benchmark interest rate to counteract a worrisome price spike for consumer goods and services. The inflation rate peaked in June 2022 at an annual increase of 9.1% but has since fallen to a 2.9% annual increase as of July.

High interest rates are intended to combat inflation by raising borrowing costs and discouraging borrowing and spending. The housing market has slowed down under high mortgage rates, and consumers have struggled to afford vehicles due to high interest rates on loans. Powell emphasized that high interest rates also signal the Fed’s determination to push inflation down.

One of the key factors in bringing down inflation without causing a recession or spike in unemployment is the public’s confidence in the central bank’s ability to control inflation. Powell credited this confidence, built over decades and reinforced by the Fed’s actions, for helping to cool down inflation.

Overall, Powell’s speech confirmed the market’s expectations of rate cuts by the Fed. The central bank is shifting its focus from fighting inflation to preserving the labor market. The timing and pace of rate cuts will depend on economic data, and financial markets are speculating about the depth of the cuts. The Fed’s decision to cut interest rates reflects its efforts to balance inflation and unemployment in the current economic landscape.

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