Fed Chair Sends Strong Signal Rate Cut is Coming in September

 ACKSON HOLE, Wyo.–The chairman of the Federal Reserve has all but officially announced a rate cut is coming in September.

Speaking at the conclusion of the Kansas City Fed’s annual retreat here, Jay Powell made clear the Federal Reserve needs to make changes to its policy on rates—meaning lower them--in order to not weaken the job market further and to prepare the economy for a soft landing. 

“The time has come for policy to adjust,” said in remarks at the conclusion of the week-long event. “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.  “We will do everything we can to support a strong labor market as we make further progress toward price stability.”

Curt Long

'The Growing Risk'

A credit union economist believes the Fed needs to act.

"Chair Powell delivered a forceful declaration of the FOMC’s intent to avoid further erosion in the labor market," said America's Credit Unions Deputy Chief Economist Curt Long. "Some recent Federal Reserve officials had suggested that while a September rate cut is likely, the Committee will act with caution in reducing rates down the road. But Powell’s comments will reassure markets that the FOMC is cognizant of the growing risk of recession, that the September cut will be the first in a series, and that the Committee stands ready to make more drastic cuts if the labor market weakens." --America's Credit Unions Deputy Chief Economist Curt Long

A Year of Holding Steady

Powell’s comments come after more than a year of holding interest rates at between 5% and 5.50%, which is the highest level in two decades. Many analysts had expected rate cuts this year, but a stronger-then-forecast jobs market and indicators of cooling inflation have led to delays in any such cuts.

Now analysts, including economists in credit unions, expect the Fed to make a move when it next meets Sept. 17-18. Some have predicted the cut could be as much as 50 basis points, rather than the traditional 25.

Others expect a 25-basis-points reduction, with additional reductions to come when the Fed meets again in November and December.

‘Upside Risks Diminished’

“We do not seek or welcome further cooling in labor market conditions,” Powell said, adding that a strong labor market could be maintained with “an appropriate dialing back of policy restraint.”

As reported earlier, the unemployment rate jumped in July, and Fed officials will receive August jobs data on Sept. 6, just ahead of their next meeting. 

“The upside risks to inflation have diminished,” Powell said in his prepared remarks. “And the downside risks to employment have increased.”