At the 2024 Jackson Hole Economic Symposium in Wyoming this morning (Aug. 23), Federal Reserve Chair Jerome Powell signaled that the central bank is ready to cut interest rates from their 23-year high next month as inflation continues to cool while the jobs market shows signs of strain.
“Time has come for policy to adjust. The direction of travel is clear,” Powell said during a highly anticipated speech today. Pointing to consumer prices rising only 2.5 percent over the last year, Powell affirmed that inflation is on track to return to the Fed’s 2 percent target. “While the task is not complete, we’ve made a good deal of progress towards that outcome,” he said.
Powell pointed to the weakening in the labor market as providing a sense of urgency for rate cuts. “We do not seek or welcome further cooling in labor market conditions,” he said. The unemployment rate rose to 4.3 percent in July, the highest level in two years.
The U.S. economy has added jobs more slowly than anticipated this year, especially after the Bureau of Labor Statistics yesterday (Aug. 22) announced a data revision showing that it had over-reported the number of new jobs created by 818,000 in March. While data revisions are common, and the figure is a fraction of the 160 million Americans who currently have jobs, the news worried many that employment growth was weaker than many had thought.
Powell projected confidence that inflation will continue to decline. He painted a picture of fluctuating price growth driven largely by supply-side limitations, citing strained supply chains and a highly tight U.S. labor market in 2022. At its peak tightness, the U.S. labor market saw twice as many job openings as the number of unemployed people available to fill them. While this supply-demand imbalance increased wages, it also put upward pressure on consumer prices.
“High rates of inflation were a global phenomenon, reflecting common experiences: rapid increases in the demand for goods, strained supply chains, tight labor markets and sharp hikes in commodity prices,” Powell summarized.
By highlighting how supply-side economic factors have contributed to easing inflation, Powell positions monetary policy as a tool that can now be wielded toward addressing rising unemployment.
Markets responded positively to Powell’s latest remarks: The S&P 500 jumped 1 percent during his speech.
