'The time has come', Fed's Powell says
"The time has come for policy to adjust" the head of America's central bank said, an unmistakable signal that interest rates were set to start being reduced.
In remarks prepared for a speech at the Jackson Hole Economic Symposium, Jerome Powell added: "We do not seek or welcome further cooling in labor market conditions."
"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."
Economists said that Powell's remarks did not give much away as to the tempo of rate cuts after September, although market chatter was that the door was open to a possible half percentage point cut.
That was the view of Stephen Brown at Capital Economics, for one, who told clients that temporary factors were likely to blame for the rise in the US unemployment rate during the month of July.
He expected to revert and the Fed to cut rates by only 25bp when it next met on 17-18 September.
But if the unemployment rate rose further then the Fed would likely go for a 50bp cut, he added.
Nigel Green at deVere Group however said: "As the Fed is winning the war on inflation – now we must look to the broader economy which is standing on a knife edge.
"Consumer confidence is wobbling, spending is slowing, and corporate earnings are under threat. The Fed cannot afford to tiptoe around these warning signs with a cautious 25-point cut. It’s simply not enough."
For his part, Ryan Sweet at Oxford Economics, who was anticipating a 25bp cut in September, noted how Powell had not pushed back on expectations for 100bp of cuts until year end.
He also believed that although the Fed's preferred gauge for the jobs market, the unemployment rate, was overstating weakness, rate-setters would not tolerate more increases "a potentially tall task unless labor force growth quickly moderates."