“The downside risks to inflation have receded,” Powell said while addressing the Jackson Hole Symposium.
Powell’s speech comes after three Fed officials said they wanted to see more data before agreeing to a rate cut. Most analysts were expecting a quarter-percentage-point decline, but some traders were hoping for up to half a point.
Powell said the US labor market cooling is unmistakable and that it is no longer hot. “The balance of threats to our mandates has shifted,” he said.
US data released this week showed a rise in jobless claims and an expected labor market cooling.
In the wake of the pandemic, the Fed has kept rates at a 23-year high after stepping up efforts to combat inflation. Meanwhile, central banks in Europe have started their cuts.
The latest minutes from the Fed’s July 30-31 meeting show that a “majority” of officials said a September rate cut is likely.
Powell’s words will be comforting for markets, including Indian equities, as they signal that the Fed has not backed away from expectations of a rate cut in September.
Financial markets expect the Fed to ease policy at the September meeting. A percentage point worth rate cut is expected by the end of this year.
At the July meeting, most Fed policymakers thought “if data continues to come in as expected, it would be appropriate to ease policy at the next meeting,” according to Fed minutes.
Despite hinting at an imminent rate cut, Powell, during his address at Jackson Hole, insisted that the path of cuts would be determined entirely by the data at hand.
Hosted by the Federal Reserve Bank of Kansas City, Jackson Hole provides a platform to discuss critical economic issues. During the event, the world’s most influential policymakers and thinkers exchange ideas away from the usual hustle and bustle of Washington or Wall Street.
US stocks jumped on Friday after Powell’s speech as the Nasdaq traded 1.64% higher, while the Dow Jones was up about 0.98%.
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