Federal Reserve chair Powell has sent a clear message at the Jackson Hole economic conference on 23 Aug, saying “the time has come for policy to adjust” regarding interest rates but “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
As inflation cools to 2.5%, Powell highlights increased risks to the labour market as reason for the strong indication. US unemployment rate rose to 4.3% in latest data, and Reuters reports chances of larger rate cuts if the August data due for release on 6 Sep shows further deterioration. Powell also attributes price increases to “overheated and temporarily distorted demand and constrained supply” which have normalised, the FT and Yahoo reports.
Markets reacted positively as the S&P500 rose 1.2%, the DJI rose 1.14%, the Nasdaq Composite rose 1.46%, and the USD fell 0.8% against rival currencies. Prominent currencies pegged to the USD include the Hong Kong dollar, the United Arab Emirates dirham, and the Saudi riyal.
Current interest rates sit at a 23-year high of 5.25-5.50% and Reuters reports forecasted rate cuts by 0.25%. The next Fed meeting takes place from 17-18 Sep and is due to review its monetary policy strategy later this year.
