Fed Chair’s comments confirm September rate cut

Federal Reserve Chairman Jerome Powell has finally conceded that “the time has come” for policymakers to begin cutting interest rates.

In a speech at the Kansas City Fed’s annual Jackson Hole Symposium, Powell said the central bank’s priorities have shifted from inflation to the labor market.

“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,” he said.

Powell acknowledged the recent weakness in the labor market. In July, the unemployment rate rose unexpectedly to 4.3%—the highest in nearly three years.

Worse, the Bureau of Labor Statistics recently admitted that it overestimated the pace of hiring by a staggering 818,000 jobs between March 2023 and March 2024. In other words, the Fed had faulty data when it decided to continue hiking interest rates in 2023.

The central bank doesn’t “seek or welcome further cooling in labor market conditions,” Powell said.

Powell’s comments were surprisingly candid for a Jackson Hole speech. Many economists, including former New York Fed President William Dudley, expected Powell’s remarks to offer no tangible clues about where central bank policy was headed next.

It’s clear that, for the first time in more than two years, policymakers are more worried about economic growth than they are about inflation.

Powell “let the cat out of the bag”

The Jackson Hole speech came less than a month after the Fed had a lively debate about whether to begin lowering interest rates in July.

According to the minutes of the July FOMC meeting, policymakers ultimately decided that September would be a more appropriate time to begin cutting rates.

“While a September rate cut is essentially a done deal at this point, the more important question is whether this will be a one-and-done rate cut, or if it will be the beginning of a more substantial cutting cycle, and that will be determined by the economic data over the next two to three months,” wrote Glen Smith, the chief investment officer of GDS Wealth Management.

Economist David Rosenberg had a more cynical take, claiming that Powell essentially “let the cat out of the bag” when he said that the job market was weaker now than it was in 2019.

“What we know about 2019 was that the Fed was cutting and went all the way down to 1.75%,” Rosenberg said.

Although several Fed officials have dismissed the notion of larger interest rate cuts, many economists believe a standard 0.25% reduction won’t be enough to stimulate the economy. Economists at Citigroup and JPMorgan believe cuts of 0.5% are more appropriate in light of recent economic data.

Bloomberg economist Anna Wong agrees and thinks that Powell’s latest Jackson Hole speech opens the door to a larger cut in September. The only question is whether he can convince other FOMC members to support follow suit.