In a highly anticipated speech at the annual economic conference in Jackson Hole, Wyoming, United States Federal Reserve Chairman Jerome Powell endorsed interest rate cuts in response to cooling job market conditions and expressed confidence in reaching the central bank’s 2 percent inflation target. Powell highlighted the need to prevent further erosion in the job market and emphasized the Fed’s commitment to supporting a strong labor market while making progress toward price stability. The current unemployment rate of 4.3 percent is considered consistent with stable inflation in the longer run.
Traders are now expecting ongoing rate cuts, with futures pricing in a Fed policy rate of 3 percent to 3.25 percent by the end of 2025, down from the current range of 5.25 percent to 5.5 percent. Powell’s comments mark a significant shift in monetary policy, indicating a new chapter for the Fed as it begins the process of rate cuts after holding rates at the highest range in a quarter of a century for over a year.
Powell’s remarks signal victory in addressing the outbreak of inflation that occurred at the start of the pandemic, with progress made towards restoring price stability. The Fed defines price stability as 2 percent inflation, and the personal consumption expenditures price index is currently running at an annual rate of 2.5 percent. While Powell did not provide specific details on the Fed’s future decisions, updated economic projections at the next meeting are expected to provide more clarity on the evolution of the benchmark policy rate.
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