JACKSON HOLE, Wyoming — Federal Reserve Chair Jerome Powell on Friday offered good news for the economy: The long fight against inflation is ending, and he’s hopeful that the U.S. will avoid recession.
In remarks at the central bank’s annual conference that are drawing international attention, Powell said “the time has come” for the Fed to cut interest rates, as his confidence has grown that inflation is tamed. His goal now: safeguarding the job market amid signs that it is slowing.
“We will do everything we can to support a strong labor market as we make further progress toward price stability,” he said at Jackson Hole.
His speech marks a striking turning point after the U.S. economy was battered by the worst price spikes in four decades starting in early 2021 — and then by the Fed’s interest rate hikes the following year as it aimed to bring inflation to heel. Now, inflation has fallen below 3 percent, close to the Fed’s target, and the unemployment rate is slowly ticking up from modern-era lows, giving policymakers confidence that they can start to ease off on the economy.
His pronouncements come just months away from a presidential election, with heavy significance for both major party candidates: Whoever wins will inherit an economy where inflation is no longer the primary concern.
In the short run, impending rate cuts could boost voters’ views on the economy’s health. That’s because lower borrowing costs will provide relief for the housing market and boost share prices, with corporate debt costs set to decrease.
But the Fed only has one interest rate meeting scheduled between now and the election — next month — meaning that most of the fallout will come afterward.
Powell will now have to decide how fast to lower rates to levels where they are no longer cutting into growth. Failing to act quickly enough could mean more unemployment.
“We do not seek or welcome further cooling in labor market conditions,” he said.
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