‘Direction of travel is clear’: Powell announces intent to shift fed policy as concerns over jobs market surges

Federal Reserve Chairman Jerome Powell showed concern regarding recent cooling in the labor market during a speech at the Federal Reserve Bank of Kansas City’s Jackson Hole Symposium on Friday.

Powell signaled that the Fed’s focus regarding its interest rate policy had shifted away from inflation to instead the weakening labor market following a disappointing jobs report for July and a Wednesday adjustment that revealed the Biden administration had overestimated previous jobs reports by nearly a million between April 2023 and March 2024. He also suggested a rate cut at the Federal Open Market Committee’s (FOMC) next meeting in September is likely, stating that it’s time for the Fed to change course.

“The upside risks to inflation have diminished, and the downside risks of employment have increased,” Powell said. “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.”

JUST IN: Fed Chair Jerome Powell declared at Jackson Hole, “THE TIME HAS COME FOR POLICY TO ADJUST,” indicating a shift towards cutting interest rates.

The timing and pace will be based on economic data, with an emphasis on preventing higher unemployment.

Full speech: pic.twitter.com/lahO6VrPUs

— Beats in Brief (@beatsinbrief) August 23, 2024

The U.S. added 114,000 nonfarm payroll jobs in July, well below economist estimates of 175,000. Meanwhile, the unemployment rate rose to 4.3% in July, an increase of 0.2% from June and an increase of nearly a full percentage point from the 3.4% rate seen in April 2023, according to the Federal Reserve Bank of St. Louis (FRED).

“Labor conditions are now less tight than they were prior to the pandemic,” Powell remarked at the symposium Friday. “We do not seek or welcome further cooling in labor market conditions.”

The inflation rate has fallen over the last year as unemployment has continued to tick up, dropping to 2.9% year-over-year in July — the first time the rate has come in below 3% since 2021.

As a result, Powell suggested the Fed has shifted its focus from restoring price stability to strengthening the labor market, saying, “The balance of risks to our two mandates has changed.” The Fed’s dual mandate is to maximize employment while minimizing inflation, according to the Federal Reserve Bank of Chicago.

As of Friday, 100% of interest rate traders expect the Fed to cut its target federal funds rate in September at the next FOMC meeting, with roughly 65% predicting a 0.25% reduction and around 35% predicting a 0.5% reduction, according to the CME Group’s FedWatch Tool. The FOMC has held the target federal funds range at a 23-year high of 5.25%-5.50% for its last eight meetings.

A reduction in the Fed’s target federal funds rate would decrease the cost of borrowing for businesses and consumers, which could help spur job growth due to a greater access to capital.

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