The Federal Reserve chairman opened the door to a first rate cut in September, given the strong performance of inflation and the risks of an economic recession.
The president of the United States Federal Reserve (Fed), Jerome Powellsaid that “the time has come for a monetary policy adjustment”, in his speech at the central bank’s annual symposium in Jackson Hole, Wyoming; and opened the doors to the long-awaited first cut of the interest rates reference.
Rising risks to the labor market leave no room for further weakness and inflation is close to the 2% target set by the Fed. With these two arguments, Powell explained to the central bankers that the time has come for the organization to move forward with the first interest rate cut at the meeting of the Federal Open Market Committee (FOMC) which will take place in September.
“The direction is clear,” said the president of the US central bank and assured that his “confidence increased in the fact that the inflation is on a long-term path to returning to 2%, which is the institution’s goal.
In this regard, he also pointed out that “the upward risks to inflation have decreased and the downward risks to employment have increased”; additional reasons to move forward with the Flexibility of the strict contractionary monetary policy that the central bank has been promoting, especially after fears of a recession in the US economy strongly affected the markets about 15 days ago.
In any case, Powell assured that “the moment and the pace of rate cuts will depend on the data that is received, the evolution of the perspectives and the risk balance“.
Assessment of the rise in unemployment
While Powell said the nearly 1 percentage point jump in the unemployment rate over the past year was largely due to increased labor supply and slowing hiring, rather than increased layoffs, he was also emphatic that the Fed wanted to avoid further erosion; his previous statement about labor market “pain” being necessary to control inflation is now a thing of the past.
The current unemployment rate of 4.3% is roughly at the level that government officials expect. Federal Reserve considered consistent with stable inflation over the long term.
“We neither seek nor welcome a further cooling of labor market conditions,” Powell said. “We will do everything we can to support a strong labor market while making further progress toward a more balanced economic environment.” price stability. With an appropriate reduction in monetary policy restriction, there is good reason to think that the economy will return to 2% inflation while maintaining a strong labor market“, he said.
Source: Ambito
