Powell Confirms Federal Reserve Pivot To Rate Cuts At Jackson Hole

Federal Reserve chair Jerome Powell spelled out in plain English what financial markets had already anticipated: The central bank is about to cut its benchmark interest rate.

In a speech at the Jackson Hole Economic Policy Symposium conference Friday, Powell said it was time for the Fed to make a major shift in its economic balancing act in which it seeks to keep the fed funds rate high enough to prevent inflation from overheating and low enough to keep unemployment from rising. That means cutting the rate from its current range of 5.25%-5.5%, its highest since 2001, where it’s been held for more than a year in an effort to push inflation down. 

“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.”

The Fed was already widely expected to cut the fed funds rate when its policy committee next meets in September. Recent economic data has shown that since 2022, the inflation rate has fallen from a 40-year high almost back to pre-pandemic levels. At the same time, the unemployment rate has steadily risen, fueling worries that the economy could enter a recession if interest rates stay high. 

Traders Speculate About Depth of Cuts

Financial market participants took Powell’s comments as a signal that steeper rate cuts are on the table.

Speculation focused on whether the Fed would open its rate cut campaign with a 0.25 percentage point cut or a steeper 0.5 percentage points. The odds of a larger cut rose to 34.5% late Friday morning, up from 24% the day before, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.