•Federal Reserve Chair Jerome Powell delivered his biggest speech of the year Friday at Jackson Hole.
•He gave the strongest indication yet that interest-rate cuts are coming in September.
• However, he said the labor market was still in flux after a disappointing July jobs report.
Federal Reserve Chair Jerome Powell all but confirmed an interest-rate cut would come in September.
On Friday, he took the stage at the Jackson Hole Economic Symposium in Wyoming, an annual meeting of central bankers from around the world, for his biggest speech of the year. He offered details on the Fed's thinking ahead of September's Federal Open Market Committee, with all eyes on the first interest-rate cut since the pandemic began.
While Powell has stressed the importance of moving slowly and ensuring the economy is on the right path toward the Fed's 2% inflation target, his Jackson Hole address showed his confidence that the Fed's restrictive monetary policy had worked and suggested that the long-awaited pivot to lower interest rates was coming soon.
"The time has come for policy to adjust," he said. "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."
It's all but certain that the Fed will cut rates in September. CME FedWatch, a tool that estimates interest-rate changes based on market probabilities, showed on Friday morning a 71.5% chance the Fed would cut rates by 25 basis points and a 28.5% chance of a 50-basis-point cut.
That leaves the big question of how much — not if — the Fed will cut rates, and the upcoming jobs report will likely shed some light on that. July's jobs report was surprisingly weak, with unemployment ticking up to 4.3%. On top of that, data from the Bureau of Labor Statistics out this week showed job growth lower than previously reported over the past year, with a downward revision of over 800,000 jobs.
Powell emphasized the slower job market in his speech. "Today, the labor market has cooled considerably from its formerly overheated state," he said. "The unemployment rate began to rise over a year ago and is now at 4.3% — still low by historical standards but almost a full percentage point above its level in early 2023."
That means the Fed will be closely watching the next jobs report on September 6 to help it determine how far to go on rate cuts next month and the rest of the year.
"Overall, the economy continues to grow at a solid pace," Powell said. "But the inflation and labor-market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate."
Powell has faced pressure from some economists and Democratic lawmakers to cut rates more than 25 basis points in September given the labor market's precarity. Still, Powell and Fed officials have expressed the importance of looking beyond a single data point. Austan Goolsbee, the Chicago Fed's president, previously told Business Insider that "data are noisy, so you want to look over a longer view.
"Our policy doesn't act instantly, and so we've got to be thinking about where we will need to be to pull off what I call the golden path, which is to get inflation down from these epic heights to something like our target without having a serious recession," he said.
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