Federal Reserve chairman Jerome Powell said in a highly anticipated speech on Friday that "the time has come" for the central bank to cut interest rates amid a cooling job market and dramatically lowered inflation.

What You Need To Know

  • Federal Reserve chairman Jerome Powell said in a highly anticipated speech on Friday that "the time has come" for the central bank to cut interest rates

  • He did not give a timeline for when cuts would begin

  • Experts expect at least a quarter-point cut to be announced at the Fed's mid-September meeting

  • Importantly, his comments signaled that he believes that the inflation that has ravaged American families over the last four years is largely under control and continuing to fall

"The time has come for policy to adjust," Powell said at the Federal Reserve's annual economic conference in Jackson Hole, Wyoming. "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 labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic," Powell said.

He did not give a timeline for when cuts would begin. Experts expect at least a quarter-point cut to be announced at the Fed's mid-September meeting.

But importantly, his comments signaled that he believes that the inflation that has ravaged American families over the last four years is largely under control and continuing to fall.

"My confidence has grown that inflation is on a sustainable path back to 2%," he added. "

The Fed chair also said that rate cuts should maintain the economy's growth and sustain hiring, which slowed last month. Continued growth could boost Vice President Kamala Harris' presidential campaign, even as most Americans say they are dissatisfied with the Biden-Harris administration's economic record, largely because average prices remain far above where they were before the pandemic.

“We will do everything we can," Powell said, “to support a strong labor market as we make further progress toward price stability.”

By cutting rates, he said, “there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.”

In what amounted to a claim of victory, Powell noted in his speech Friday that the Fed had succeeded in conquering high inflation without causing a recession or a sharp rise in the unemployment rate, which many economists had long predicted.

The Fed chair attributed that outcome to the unraveling of the pandemic's disruptions to supply chains and labor markets, and a reduction in job vacancies, which allowed wage growth to cool.

After the government reported this month that hiring in July was much less than expected and that the jobless rate reached 4.3%, the highest in three years, stock prices plunged for two days on fears that the U.S. might fall into a recession. Some economists began speculating about a half-point Fed rate cut in September and perhaps another identical cut in November.

But healthier economic reports last week, including another decline in inflation and a robust gain in retail sales, partly dispelled those concerns. Wall Street traders now expect the Fed to cut its benchmark rate by a quarter-point in both September and November and by a half-point in December. Mortgage rates have already started to decline in anticipation of rate reductions.

A half-point Fed rate cut in September would become more likely if there were signs of a further slowdown in hiring, some officials have said.

The Associated Press contributed to this report.