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

Federal Reserve Chairman Jerome Powell said the time had come for the U.S. central bank to cut its benchmark interest rate, reiterating expectations that policymakers will begin reducing borrowing costs next month and making clear their intention to avoid further cooling of markets.

“The time has come for a policy adjustment,” Powell said Friday in a speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “The way forward 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 chairman acknowledged recent progress on inflation, which has slowed again in recent months after stagnating at the start of the year: “My confidence has increased that inflation can return to 2 percent in a sustainable manner,” he said, referring to the central bank’s inflation target.

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

Still, the speech confirmed that the Fed’s two-year fight against inflation is on the verge of a fundamental turning point. For much of that time, the unexpectedly strong job market had given policymakers room to focus single-mindedly on getting inflation down to the central bank’s 2% target.

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

While inflation remains above the Fed’s target, it has retreated sharply 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 for a fourth straight month in July. Meanwhile, the unemployment rate also rose for a fourth straight month to 4.3% last month, as employers also slowed their pace of hiring.

Powell’s comments are likely to be welcomed by Americans facing high interest rates associated with mortgages, autos, credit cards and other loans. Investors widely expect the Federal Open Market Committee to cut interest rates by 25 basis points when it meets again on Sept. 17-18.