US: Powell says “time has come” for Fed to cut interest rates

Chairman Jerome Powell said it was time for the Federal Reserve to cut its benchmark interest rate, reaffirming expectations that policymakers will start reducing borrowing costs next month and making clear their intention to prevent further cooling in the labor market.

“The time has come for policy to adjust,” Powell said Friday in the text of a speech at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. “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 chief acknowledged recent progress on inflation, which has moderated again in recent months after stagnating earlier in the year: “My confidence that inflation is on a sustainable path back to 2% has increased,” he said, referring to the central bank’s inflation target.

While the comments provided some clarity for financial markets in the short term, they offered few clues about how the Fed might proceed after its September meeting.

Still, the speech confirmed that the Fed is on the verge of a key turning point in its two-year battle against inflation. For much of that time, the labor market has been surprisingly robust, giving policymakers room to focus single-mindedly on bringing inflation down toward the central bank’s 2% target.

The Fed has kept its benchmark rate in a range of 5.25% to 5.5% — its highest level in more than two decades — over the past year to support that goal, pushing up borrowing costs across the economy and globally.

While inflation still remains above the Fed’s target, it has retreated significantly from its recent peak of 7.1% in 2022. The central bank’s preferred inflation gauge, the personal consumption expenditures price index, rose 2.5% in June from a year earlier. A separate measure of underlying consumer inflation cooled in July for the fourth straight month. Meanwhile, the unemployment rate rose last month, also for the fourth straight time, to 4.3%, and employers slowed the pace of hiring.

Powell’s comments are likely to be welcomed by Americans facing high interest rates tied to mortgages, autos, credit cards and other loans. Investors are widely anticipating a quarter-point cut when the Federal Open Market Committee meets again on Sept. 17-18.