Powell at Jackson Hole: 'The time has come' for the Fed to soon begin reducing interest rates

By CHRISTOPHER RUGABER
AP Economics Writer

JACKSON, Wyoming — With inflation nearly defeated and the job market cooling, the Federal Reserve is prepared to start cutting its key interest rate from its current 23-year high, Chair Jerome Powell said Friday.

Powell did not say when rate cuts would begin or how large they might be, but the Fed is widely expected to announce a modest quarter-point cut in its benchmark rate when it meets in mid-September.

“The time has come for policy to adjust," Powell said in his keynote speech at the Fed's annual economic 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.”

His reference to multiple rate cuts was the only hint that a series of reductions is likely. Powell stressed that inflation, after the worst price spike in four decades inflicted pain on millions of households, appears largely under control. According to the Fed’s preferred measure, inflation fell to 2.5% last month, far below its peak of 7.1% two years ago and only slightly above the central bank’s 2% target level.

“My confidence has grown," he said, “that inflation is on a sustainable path back to 2%.”

Powell’s assessment signaled that the Fed is making a fundamental shift from its 2 1/2-year fight against inflation, toward a broader effort to keep the economy growing and employers hiring.

The Fed chair's assurance that rate cuts are coming helped fuel a rally on Wall Street. Bond yields fell, and stock indexes were broadly higher.

“The only question remaining for the Sept. 18 meeting is: By how much will the Fed be cutting?” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.

“The outcome of the August employment report," which will be reported Sept. 6, LaVorgna said, "is obviously critical.” If that report shows a second straight month of weak hiring, the Fed may cut its key rate by a more aggressive half-point.

Most economists expect the Fed to cut its benchmark rate by a quarter-point at each of its final three meetings this year. Wall Street traders, though, foresee a one-in-three likelihood that the Fed will cut by a half-point at one of those meetings, according to futures prices. A lower Fed benchmark rate will lead eventually to lower rates for auto loans, mortgages and other forms of consumer borrowing and could also boost stock prices.

In his remarks Friday, the Fed chair suggested that rate cuts should help extend the much sought-after “soft landing,” whereby inflation falls back to the Fed’s 2% target without a recession occurring.