Key Fed statement for markets: Jerome Powell says ‘time has come’ to cut interest rates

The president of the American Federal Reserve (Fed, central bank), Jerome Powellopened the door this Friday to a first interest rate cut at the body’s next meeting in September.

“The time has come for a monetary policy adjustment,” Powell said during his traditional speech at the meeting of central bankers in Jackson Hole (Wyoming).

“The direction is clear,” said the president of the US central bank and assured that his “confidence increased in the fact that Inflation is on a long-term path, returning to 2%”which is the objective of the institution.

Powell justified the changes that will be made to the Fed rates

Powell said, so, It’s time for the US central bank to cut interest ratesas rising risks to the labor market leave no room for further weakness and inflation is close to the Fed’s 2% target.

“Upside risks to inflation have diminished and downside risks to employment have increased,” Powell said in a highly anticipated speech at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming.

“The time has come to adjust monetary policy. The direction of travel is clear, and The timing and pace of rate cuts will depend on incoming data.the evolution of the outlook and the balance of risks.”

Referring to the two goals Congress tasked the Fed with achieving, Powell said: Their “confidence has grown that inflation is on a sustainable path back to 2%”having risen to around 7% during the COVID-19 pandemic, while unemployment is increasing.

The rise in unemployment, according to Powell

While Powell said that The nearly one percentage point jump in the unemployment rate over the past year was largely due to increased labor supply and slowing hiring, not rising layoffs, was also emphatic that the Fed wanted to prevent further erosion; its 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 Fed officials 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 price stability.. With an appropriate reduction in monetary policy tightening, there is good reason to believe that the economy will return to 2% inflation while maintaining a strong labor market.”