With inflation easing and the labor market cooling, “the time has come for policy to adjust,” Federal Reserve Chairman Jerome Powell said today. Speaking at an economic symposium in Wyoming, Powell said “the direction of travel is clear” on monetary policy.
“The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell said. “We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.”
The Federal Open Market Committee raised the target range of the federal funds rate by 425 basis points in 2022 and 100 basis points in 2023 as it sought to lower the annual rate of inflation to the Fed’s 2% target. The FOMC has since kept the target range at 5.25% to 5.5%. Powell signaled that the FOMC is ready to start lowering rates. The committee will next meet in September.
“Our restrictive monetary policy helped restore balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remained well anchored,” Powell said. He also noted that while the unemployment rate is low by historical standards, it is still a full percentage point above what it was in 2023, and most of that increase came over the past six months.
“Overall, the economy continues to grow at a solid pace,” he said. “But the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate.”
