"The Time Has Arrived" (alternatively, "It's Time Now")
The United States Federal Reserve is set to lower interest rates, a move that has been highly anticipated by the financial market. As predicted, Federal Reserve Chair Jerome Powell did not disappoint at the central bank's conference in Jackson Hole, Wyoming. The goal is to prevent the economy from decelerating and to maintain a robust labor market, although Powell left the specifics of the new policy up in the air.
At the conference, Powell hinted at the possibility of a rate cut in September without providing an exact date. He explained, "The roadmap is set, but the fine details, such as the rate and speed of the cuts, will depend on forthcoming data, revised forecasts, and the balance of risks." Powell also assured that a chill in the labor market was not on the agenda.
Powell's optimistic remarks sent stock markets, including the DAX and Wall Street, soaring. However, bond market yields dropped, and the dollar weakened simultaneously.
In terms of inflation, Powell noted that although the struggle against the sharp rise in consumer prices is far from over, substantial strides have been made. With a "suitable" adjustment of monetary policy, it's plausible that the inflation rate will return to the Federal Reserve's goal of two percent while the labor market remains robust. Intriguingly, US consumer prices unexpectedly dipped in July, rising 2.9 percent year-on-year.
The Federal Reserve last reduced the key interest rate in March 2020 to stimulate the economy during the early stages of the COVID-19 pandemic. Interest rates remained close to zero until the Fed began hiking rates at an unprecedented pace in March 2022, reaching their current level a year ago.
Banks can secure loans from the Fed at the policy rate, making a rate cut more affordable for both consumers and businesses. Currently, the benchmark rate is at its highest point in more than two decades, ranging from 5.25 to 5.5 percent.
At the conference, Powell mentioned that the interest rate policy could be adjusted to help prevent an economic deceleration. Moreover, he suggested that the specifics of the new interest rate policy would be determined by upcoming data and revised forecasts.
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