The head of the Fed emphasized the “unusual situation” of the labor market and the “changing risks” in the United States economy.
The president of the United States Federal Reserve (FED), Jerome Powellhe raised during his inaugural speech in Jackson Holethe possibility of a cut in interest rates in September, Due to the “changing risks”particularly in the North American labor market. Despite caution in its statements, the market took novelty with euphoria, giving the granted a reduction in the fees.
The Fed head said “While the labor market seems to be in balance, it is a curious balance that results from a marked deceleration of both the supply and the demand of workers”. It is a “Unusual situation” That suggests that “the downward risks for employment are increasing” and, in case of doing so, “they could do it quickly in the form of a considerable increase in layoffs and an increase in unemployment.”
Anyway, he also said that “the stability of the unemployment rate and other labor market indicators” allows members of the Fed “Proceed with caution when considering changes” in its monetary policy. According to July data, the unemployment level was 4.2%, in compliance with the objective of the Central Monetary Bank to maintain that indicator below 4.5%.
But then, Powell added: “With the monetary policy in restrictive territory, Reference perspectives and changing risk balance could justify an adjustment of our political position“
USA Federal Reserve
The effects of tariffs on inflation
In what was his last speech in Jackson Hole, since his mandate ends in May, Powell also said that the effects of tariffs on consumer prices They are “clearly visible now”but a “reasonable” scenario is that its effect does not last long.
However, he considered that “It is also possible that bull pressure on prices derived from tariffs can boost a more durable inflation dynamicand that is a risk that must be evaluated and managed. “
And he added: “When our goals are in a tension situation as tense as this, Our frame requires us to balance both aspects of our double mandate“
The euphoria of the market
Meanwhile, The market took the statements almost as a confirmation that there will be cut in the September meeting. The expectations of a reduction of 0.25 points in the rate were located above 90%, after having dropped to 71.5% yesterday, according to data collected by Fedwatch.
Meanwhile, the main Wall Street indices rise above 1.5% after speech. In case of producing, It would be the first cut since Trump returned to the White House and began his commercial war.
Anyway, four weeks are still left for The monetary authority announced its decision on interest rates on September 17. To this is added that retail inflation and August Employment Report are still known.
Source: Ambito
