In a much-anticipated address at the Jackson Hole Economic Symposium in Wyoming, Federal Reserve Chair Jerome Powell indicated on Friday that the central bank is poised to start reducing interest rates.
"The time has come for policy to adjust," Powell announced, though he emphasized that the "timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."
Powell's assertion that it's time for the Fed to begin cutting rates follows his growing "confidence that inflation is on a sustainable path back to 2 percent."
Fed officials have consistently maintained they require "greater confidence" that inflation is moving sustainably towards the central bank's 2 percent target before considering rate cuts.
Powell noted that inflation is now much closer to the Fed's goal, with consumer prices rising 2.5 percent year-over-year in July, and highlighted that progress towards the 2 percent mark has resumed after stalling earlier this year.
On employment, Powell observed that the labor market has significantly cooled from its previously overheated state, with the unemployment rate climbing to 4.3 percent.
According to Powell, the rise in the unemployment rate largely reflects a substantial increase in the labor supply and a slowdown in the previously rapid pace of hiring, rather than elevated layoffs.
"Even so, the cooling in labor market conditions is unmistakable," Powell remarked, adding, "We do not seek or welcome further cooling in labor market conditions."
A considerable portion of Powell's speech focused on the reasons inflation rose and subsequently fell significantly even as unemployment remained historically low, noting that this period "will be analyzed and debated long after we are gone."
Powell's comments come as recent inflation data has bolstered confidence that the Fed will cut interest rates at its next monetary policy meeting in September.
According to CME Group's FedWatch Tool, there is a 67.5 percent probability of a quarter-point rate cut at the September 17-18 meeting and a 32.5 percent chance of a half-point rate cut.
Minutes from the Fed's late July meeting, released on Wednesday, revealed that the "vast majority" of participants felt it would "likely be appropriate" to lower rates at the next meeting if inflation data continued to align with expectations.
