Federal Reserve Chairman Jerome Powell announced that the time has come for the U.S. central bank to begin cutting interest rates, signaling a significant shift in monetary policy aimed at sustaining economic stability. Speaking at the annual Jackson Hole symposium, Powell cited progress in reducing inflation, which had soared to its highest levels in a generation, as the key reason for this policy change.
Powell emphasized that inflation is now on a “sustainable” path back to normal levels, with price growth easing to an annual rate of 2.9% in July, down from a peak of 9.1% in June 2022. He noted that the U.S. labor market, which rebounded strongly after the initial COVID-19 crisis, now faces increased downside risks, with unemployment ticking up last month.
Despite these challenges, Powell expressed optimism that further reductions in inflation could be achieved without jeopardizing the economy. “The time has come for policy to adjust,” he stated, indicating that the Federal Reserve is prepared to reduce rates starting in September, pending incoming data and the evolving economic outlook.
This move marks a departure from the Fed’s aggressive rate hikes over the past two years, which were implemented to curb surging inflation during the pandemic. With inflation now moderating, the focus has shifted toward achieving a “soft landing”—reducing inflation to the Fed’s 2% target while avoiding a recession.
Contrasting Powell’s outlook, Bank of England Governor Andrew Bailey warned that the UK economy still faces risks from high inflation, requiring continued caution. The UK recently cut interest rates for the first time since the pandemic, but Bailey cautioned that it was too early to declare victory over inflation.
Powell’s remarks, however, were met with a positive response on Wall Street, where stocks rose on expectations of the upcoming rate cuts.
