US Federal Reserve Chairman Jerome Powell on Friday said the time has come for the monetary policy to adjust, and the timing and pace of rate cuts will depend upon the evolving inflation and unemployment data. He, however, said the upside risks to inflation have diminished, and downside risks to employment have increased.
“The labour market has cooled considerably. The unemployment is at 4.3 per cent, which is still low by the historical standards but still almost 4 percentage points above its level in early 2023,” Jerome Powell said while speaking at the Jackson Hole Symposium.
He said job vacancies have fallen. Nominal wage gains have moderated.
“Labour market conditions are now less tight than just before the pandemic in 2019, a year when inflation ran below 2 per cent. It is unlikely that the labour market will be a source of elevated inflationary pressure anytime soon. We do not seek or welcome further cooling in labour market conditions,” he said.
Overall, the US economy continues to grow at a solid pace but the inflation and labour market data show an evolving situation, Powell added.
“The upside risks to inflation have diminished, and downside risks to employment have increased. As we have highlighted in our last FOMC statement, we are attentive to the risks of both the sides,” the US Fed chair said.
“The time has come for the policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend upon the evolving data,” Powell added, hinting at starting a rate cut cycle which could start by hiking up to 50 basis points (bps) in September 2024 also depending upon evolving macroeconomic data.
As the US Fed chair speaks, the Nasdaq rose 1.41 per cent and the Dow Jones Industrial Average rose 0.78 per cent.
The US central bank has been holding the interest rates for the past one year since July 2023. Before that, between March 2022 and July 2023, the US Federal Reserve raised the interest rates by 525 basis points to control inflation, which hit a multi-decade high amid the Ukraine-Russia war and COVID restrictions.
A basis point is 100th of a percentage point.
The last interest rate cut in the US took place on March 15, 2020.
The next US Fed’s FOMC meeting will take place on September 17-18.
