An interest rate cut at the Federal Reserve’s next meeting in September is likely, Fed Chair Jerome H. Powell signaled Aug. 23, as both inflation and the labor market continue to cool.
“The time has come for policy to adjust,” Powell said in a speech at the Fed's annual economic symposium at Jackson Hole, Wyo. “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 Fed will do everything it can to support a strong labor market as it makes further progress toward price stability, Powell said. “With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market,” he added. “The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.”
The Federal Open Market Committee has kept the federal funds rate unchanged since July 2023 at a range of 5.25% to 5.5%.
Immediately after Powell’s remarks, market participants indicated there’s a 67.5% chance the Fed will initiate a quarter-point rate cut at its September meeting and a 32.5% chance it will greenlight a half-point cut, according to the CME FedWatch Tool that tracks trading in the 30-day Fed Funds futures.
Powell on Aug. 23 did not indicate his preference for the pace at which the Fed should cut rates.
The Bureau of Labor Statistics reported Aug. 14 that the consumer price index rose an annualized 2.9% from a year ago in July — the smallest 12-month increase recorded since March 2021 — and slightly below the 3% figure recorded in June.
Moreover, the core personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 2.5% year over year in June.
“Inflation is now much closer to our (2%) objective,” Powell said.
On the labor market, Powell noted a softening but said it’s unlikely to be “a source of elevated inflationary pressures anytime soon.” In July, the unemployment rate ticked up to 4.3% from 4.1% in June. Also, the Bureau of Labor Statistics on. Aug. 14 said monthly payroll figures were overstated by more than 800,000 in the 12 months ended in March.
The Fed’s next meeting is Sept. 17-18.
