U.S. FOMC Chair Powell Speech at Jackson Hole Symposium (August 23, 2024)

Fed Chair Powell provides strongest signal yet for a September rate cut

• At the Federal Reserve Bank of Kansas City's Jackson Hole Symposium, Federal Reserve Chair Jay Powell gave a much-anticipated speech on the state of the economy, simply titled, Review and Outlook. 
• Chair Powell spoke on inflation, stating that it "is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months. After a pause earlier this year, progress toward our 2 percent objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2 percent." 
• On the state of the economy, he noted that "the cooling in labor market conditions is unmistakable. Job gains remain solid but have slowed this year. Job vacancies have fallen, and the ratio of vacancies to unemployment has returned to its pre-pandemic range. The hiring and quits rates are now below the levels that prevailed in 2018 and 2019." Overall his assessment was "labor market conditions are now less tight than just before the pandemic in 2019—a year when inflation ran below 2 percent."
• Regarding the path for policy, he stated "the time has come for policy to adjust. 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.   

Key Implications

• Chair Powell confirmed what we were all expecting – that the Fed is going to cut rates at its September 17th to 18th policy meeting. Core PCE inflation has stabilized around the mid-2% level, while economic momentum has finally started to slow in response to past rate hikes. What's clear is that the economy no longer needs such a restrictive policy stance from the Fed. 
• Today's speech follows similar rhetoric from other Fed members and the minutes from the July policy meeting, which revealed that downside risks to the economy have become the top priority at the Fed. While Chair Powell didn't give much in terms of the expected pace of cuts, it didn't seem like an oversized 50 basis point (bp) cut is warranted at this time. We maintain our view that the Fed will proceed with 25 bp cuts at each of its next three meetings over 2024, bringing the policy rate to 4.75% by year-end.      

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