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At the Federal Reserve’s annual retreat in Jackson Hole, Wyo., Chairman Jerome Powell uttered the four words markets had been waiting for since last spring.
“The time has come”, Powell said, for the Fed to begin reducing interest rates.
“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.”
The Federal Reserve was poised to cut rates in June when a sudden burst of inflation in May stayed its hand. Another inflation increase in June forced a reevaluation of the Fed’s plans to cut rates by up to 125 basis points (one and a quarter percent) by the end of the year.
With the inflation rate in July coming in under 3% for the first time since 2022, the central bank seems ready to start cutting.
“The only question remaining for the Sept. 18 meeting is: By how much will the Fed be cutting?” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.
Indeed, some eager beavers are calling for a rate cut of half or even a full percentage point. That’s not likely unless the jobs report shows higher-than-expected unemployment.
“The outcome of the August employment report,” which will be reported Sept. 6, LaVorgna said, “is obviously critical.
