Fed Chair Jerome Powell Signals Near-Term Rate Cuts in Jackson Hole Speech

Federal Reserve Chair Jerome Powell confirmed Friday that the central bank is poised to cut interest rates soon, citing progress on combating inflation.

Speaking during a keynote address at the Fed’s annual retreat in Jackson Hole, Wyo., Powell said the central bank is finally positioned to shift its focus after bringing short-term borrowing costs to their highest levels in more than two decades. He did not give specifics on the timing or scope of the planned interest rate cuts. 

“The time has come for policy to adjust,” Powell said in his Friday morning remarks. “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.”

Powell laid the foundation for late 2024 interest rate reductions on July 31 when the Fed paused them for an eighth straight meeting and he said in a post-meeting press conference that economic conditions were moving closer to enabling a cut. The Fed is next scheduled to meet Sept. 18. 

The central bank leader has constantly stressed the need to bring inflation to a sustained path toward the Fed’s 2 percent target before interest rate cuts can occur. On Friday, Powell cited progress on the inflation battle, noting that prices rose 2.5 percent year-over-year in its latest data, compared to a peak of 7 percent two years ago. 

“Inflation has declined significantly,” Powell said. “The labor market is no longer overheated and conditions are now less tight than those that prevailed before the pandemic.” 

Markets responded positively to Powell’s speech with the Dow Jones Industrial Average rising nearly 400 points in late morning trading. 

If the Fed cuts rates on Sept. 18, it would mark the first time it slashed interest rates since a 100 basis point cut to between 0 percent and 0.25 percent on March 16, 2020, at the beginning of the COVID-19 pandemic. The Fed implemented interest rate hikes in 11 of 12 sessions from March 2022 to July 2023, raising rates to between 5.25 percent and 5.5 percent.

Shortly after the last Fed meeting, a report from the U.S. Department of Labor showing that unemployment rose 4.3 percent from 4.1 percent, marking its highest level since October 2021, prompted the commercial real estate industry to gear up for a potential half-point rate cut in September insead of a quarter. The Bureau of Labor Statistics has since released data showing that U.S.economy generated 818,000 fewer jobs from March 2023 to March than previously recorded. 

Nigel Green, CEO and founder of asset management firm deVere Group, said Friday after Powell’s speech the Fed should cut interest rates by 50 basis points in September, citing concerns that a recession might occur without such a move. 

“A small cut might signal a shift, but it won’t deliver the jolt needed to prevent a potential hard landing,” Green said in a statement. “It’s time for the Fed to act boldly, cut rates aggressively, and send a clear message that it’s ready to do whatever it takes to keep the U.S. economy on track.” 

​Andrew Coen can be reached at acoen@commercialobserver.com