Federal Reserve Chair Jay Powell said Friday he expects the central bank will cut its key interest rate in the near future in response to slower economic growth and cooling inflation.
At a speech during the Fed’s annual August summit in Jackson Hole, Wyoming, Powell said “the time has come for policy to adjust.” His remarks come as price growth has slowed and the jobs market, as well as demand for borrowing money, has begun to soften to a weaker level than before the onset of the Covid-19 pandemic.
“Inflation has declined significantly,” Powell said. “The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic. Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”
Markets initially responded favorably to the news, with the Dow Jones Industrial Average surging 300 points.
The speech was highly anticipated as the U.S. economy appears to be entering a new, more subdued phase following several years of surging growth following pandemic reopenings.
However, Powell was vague about the extent and timing of a cut, leaving market participants guessing about how exactly the Fed views the current state of economic growth.
This is a developing story. Check back for updates.