Here’s the latest from Fed Chairman Jerome Powell on interest rate cuts

At an annual meeting of global central bankers in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell on Friday sent his strongest signal yet that the monetary body is ready to start making reductions to its benchmark federal funds rate, which has stood at a two-decade high since July 2023.
“The time has come for policy to adjust,” Powell said. “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.”
While most economists have been predicting a rate cut at the Fed’s September policy meeting, until now Powell has approached the topic with mostly soft indications and qualifying language. But Friday’s comments were widely interpreted as confirming and U.S. financial markets were reflecting a positive response to the Fed chair’s latest update.
Should the Fed make a downward adjustment next month, it would mark the first reduction in over four years and the start of a reversal to one of the most aggressive strategies undertaken by the U.S. central bank aiming to quash inflationary pressures fueled by unprecedented economic impacts of the COVID-19 global health crisis.
The Fed’s overnight intra-bank lending rate has stood at 5.25% to 5.5% since last summer and is the highest in 23 years after a series of 11 straight increases levied earlier by the monetary body in its efforts to cool off a U.S. economy that was running red-hot amid the pandemic recovery.
While U.S. inflation has eased to 2.5%, per the Fed’s preferred measure, it saw a peak north of 7% in 2022 and was on the rise again earlier this year before tracking back to a reduction trend over the second quarter of 2024. But even as inflation has shown signs of heading reliably back to the Fed’s goal of 2%, a jobs market that’s shown some unexpectedly fast slowing is a driving factor behind a September rate cut decision.
“Overall the economy continues to grow at a solid pace but the inflation and labor market data show an evolving situation,” Powell said. “The upside risks to inflation have diminished and the downside risks to employment have increased.”
The latest Labor Department data, released earlier this month, found U.S. businesses added 114,000 new, nonfarm payroll jobs in July, falling far short of the 175,000 expected by many economists and trailing well behind the 217,000 new jobs per month average over the past year. The annual unemployment rate hit 4.3% in July, its highest level since October 2021 and up from June’s 4.1%. The Labor Department’s July Employment Situation Summary found the number of unemployed people increased by 352,000 to 7.2 million last month. The new data reflects a significant rise in U.S. unemployment from 12 months ago, when the jobless rate was 3.5% and the number of unemployed people numbered 5.9 million.
Adding to ebbing recent job growth data, the Labor Department announced earlier this week it was revising down its initial assessment of how many jobs were added in 2023 by 818,000 positions. Under the revision, the total number of jobs created last year has been adjusted to 2 million. While making data revisions is a regular part of the agency’s labor market analyses, the adjustment was larger than has been typical.
The Fed’s two-part policy mandate of supporting price stability and maximum employment has been skewed heavily toward the inflation metric for the last few years but the recent labor market slowdown has, as Powell noted in his Friday comments, pushed the monetary body’s focus to the jobs side of responsibilities.
“The unemployment rate began to rise over a year ago and is now at 4.3%,” Powell said. “Still low by historical standards but almost a full percentage point above its level in early 2023. Most of that increase has come over the past six months. So far rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn. Rather the increase mainly reflects a substantial increase in the supply of workers and a slowdown from the previously frantic pace of hiring.”
“We don’t seek or welcome further cooling of labor market conditions,” Powell said.
At the state level, Utah’s unemployment rate has also been on the rise, though it’s tracking at a much lower rate than the national average. The latest data from the Utah Department of Workforce Services found the state’s unemployment rate came in at 3.2% in July, up two-tenths of a percent from June.
Interest rate adjustments are the Fed’s primary weapon against the elevated prices of consumer goods and services. The rate increases raise the cost of debt for businesses and consumers, a move that aims to reduce the amount of spending and overall economic activity. That shift in dynamics typically leads to lower inflation rates.
The next Federal Reserve policy meeting, which will include a rate-setting vote by the body’s Federal Open Market Committee, is scheduled for Sept. 17-18.