Powell Removes 'Any Uncertainty' Around September Rate Cuts In Jackson Hole Speech: Economists

Federal Reserve Chairman Jerome Powell came across loud and clear on Friday at the Jackson Hole Economic Symposium that the Fed will cut rates in September, economists said.

“Chairman Powell used the podium at the Jackson Hole Economic Symposium to officially announce the commencing of policy rate cuts and remove any uncertainty around the September FOMC meeting being a live one,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

 “While the pace and magnitude has yet to be determined, it has been made very clear that the shift in focus have moved towards the labor market and the broader trajectory of the US economy.”

Powell said Friday that the time has come to adjust monetary policy, while holding back on committing to a specific path for rate cuts or any specifics on how far rates would get lowered.

"My confidence has grown that inflation is on a sustainable path back to 2 percent," the Fed chair said at the Jackson Hole Symposium.

"The time has come for policy to adjust. 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 at the Jackson Hole meeting.

Jeffrey Roach, chief economist for LPL Financial, noted that Powell highlighted the labor market 27 times in his speech and talked about the Fed’s “transitory hypothesis” for lowering rates while defending the agency’s argument for that view.

“One of the best concepts in today's speech for investors to understand is the current data show an evolving macro landscape,” he said.

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“The jury is still out if the Fed can successfully manage the risks to both sides of their dual mandate. However, Chairman Powell could not be more clear – "the time has come for policy to adjust."

The markets applauded Powell’s comments for clearly indicating the start of monetary easing at the Sept. 18 Federal Open Market Committee meeting, said Quincy Krosby, chief global strategist for LPL Financial.

“Although Powell hesitated to offer specifics in terms of the pace of rate easing it was clear that he remained satisfied that disinflation is continuing towards the Fed’s price stability target,” she said.

“Moreover, he maintained that the labor market, while normalizing, the unemployment rate has risen due to broader labor market participation met by fewer job vacancies. Still, he underscored that the Fed stands ready to act should there be a marked deterioration in labor conditions.”

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said Powell took responsibility for the error in initially calling inflation "transitory” but said many private sector economists got it wrong as well, while also signaling a rate cut in September.

“In addition, he specifically mentioned that they don't want the labor market to soften any further, which is Fed-speak for a more aggressive rate cutting regime, if unemployment starts moving higher in a meaningful way,” he said.

“The market should be happy with this speech because it wasn't hawkish in any way, gave the green light for 25 bps rate cuts, and left the door open for even larger cuts if that becomes necessary (e.g. in the event the economy or labor market softens materially).”

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