Federal Reserve Chairman Hints at Possible Rate Cut

(MENAFN) Federal Reserve Chairman Jerome Powell hinted at a potential rate cut, suggesting that the current "restrictive" policy stance may need adjustment. Speaking at the prestigious Jackson Hole symposium, Powell stated: "With policy in restrictive territory, the baseline outlook and shifting balance of risks may warrant adjusting our policy stance."

The event, held annually by the Federal Reserve's Kansas City branch since 1978, is taking place this year from August 21 to 23. Powell highlighted the difficult balance the Fed faces, noting that inflation risks remain tilted to the upside while employment risks are skewed to the downside in the short term.

"When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate," Powell remarked, acknowledging the complexity of the current economic environment.

Powell emphasized that the Fed's policy rate has now moved 100 basis points closer to neutral than it was just a year ago. He pointed to the stability in the unemployment rate and other labor market indicators, suggesting that the Fed can move cautiously as it evaluates potential policy shifts.

"Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance," he said.

Despite the potential for policy adjustment, Powell stressed that the Federal Open Market Committee's decisions will be based on data and economic forecasts, reaffirming the Fed's commitment to data-driven action. "We will never deviate from that approach," he added.

On inflation, Powell acknowledged the visible impact of tariffs, noting: "Turning to inflation, higher tariffs have begun to push up prices in some categories of goods." He estimated that Personal Consumption Expenditures (PCE) prices increased 2.6% in the year ending July, with core PCE rising by 2.9%, surpassing last year's figures.

Within core PCE, goods prices climbed 1.1% over the past year, marking a stark contrast to the modest decline observed in 2024. However, Powell highlighted a notable divergence: while housing services inflation continues to drop, non-housing services inflation remains slightly elevated compared to the Fed's 2% target.

"Inflation has been above our target for more than four years and remains a prominent concern for households and businesses," Powell concluded, underscoring the challenges ahead for policymakers and the broader economy.

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