Powell: "Time for Policy Adjustment"... Cementing September Rate Cut

"No Desire for Further Cooling of the Labor Market"

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated that "the time has come to adjust policy," effectively officially signaling a rate cut in September.

On the 23rd (local time), at the annual economic policy symposium held in Wyoming, the Jackson Hole Meeting, Chairman Powell said, "We have become more confident that inflation is sustainably slowing to 2%," adding, "The path forward is clear, and the timing and pace of rate cuts depend on incoming data, changing outlooks, and the balance of risks." Although he did not specify the exact size or pace of the rate cut, this indicated a pivot in policy at the upcoming Federal Open Market Committee (FOMC) meeting next month.

Regarding the recent labor market, he diagnosed that it is "unmistakably" slowing down.

Chairman Powell stated, "We do not want labor market conditions to cool further," and added, "Our goal is to restore price stability while maintaining a strong labor market and avoiding a sharp rise in unemployment." He emphasized, "The mission is not yet complete, but we have made significant progress toward the outcome."

The market interpreted Powell's remarks as dovish (favoring monetary easing), as he clearly signaled a rate cut in September but did not rule out a 'big cut' (0.5 percentage point reduction).

Earlier, Fed officials gathered at the Jackson Hole Meeting, which opened the previous day, also hinted at a rate cut in September. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, said the day before, "We should start the process of cutting rates in September." Susan Collins, President of the Federal Reserve Bank of Boston, also said, "We are focused on continuing to lower inflation while maintaining a healthy labor market," adding, "In this context, it seems appropriate to begin policy easing soon." However, both officials mentioned systematic and gradual rate cuts, emphasizing the possibility of a baby cut (0.25 percentage point rate cut) over a big cut in September.

Anna Wong of Bloomberg Economics (BE) analyzed, "Powell did not rule out a bet on a 50bp (1bp=0.01 percentage point) cut in September," adding, "He did not say the rate cut should be gradual, nor did he use the term 'systematic' that his Fed colleagues used when mentioning the possibility of rate cuts." She evaluated, "Powell's remarks sounded somewhat dovish."

As a result, the importance of incoming data before the September FOMC has increased. The August employment report, which will influence the Fed's policy decisions, will be released on the 5th of next month, and the August Consumer Price Index (CPI) data will be published on the 11th of next month.

Investors are also interpreting Chairman Powell's remarks as dovish. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected a 65.5% probability that the Fed will cut rates by 0.25 percentage points in September. The probability of a big cut of 0.5 percentage points rose from 24% the previous day to 34.5%.