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Federal Reserve Chair Jerome Powell announced on Friday (August 23) that the central bank is prepared to cut interest rates, signaling a shift in policy due to a cooling job market and nearly defeated inflation. The announcement was made during Powell's keynote speech at the Fed's annual economic conference in Jackson Hole, Wyoming.
Stocks jumped following Powell's speech, with the Dow Jones Industrial Average climbing by around 300 points.
"The time has come for policy to adjust," Powell said. "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 rate cut is expected to be announced at the Fed's meeting in mid-September, marking the first reduction since 2020.
The decision comes as the unemployment rate has risen to 4.3%, up nearly a percentage point from recent lows, raising concerns about a weakening economy. Powell emphasized that the Fed does not "seek or welcome further cooling in labor market conditions."
Powell's speech also reviewed the reasons behind the inflation surge in 2021 and 2022, attributing it to short supplies in certain areas. However, he noted that inflation is now largely under control, with the Fed's preferred measure falling to 2.5% last month, only slightly above the central bank's 2% target level.
Powell's speech was a claim of victory, noting that the Fed had succeeded in conquering high inflation without causing a recession or a sharp rise in the unemployment rate.
The Fed chair also said that rate cuts should maintain the economy's growth and sustain hiring, which slowed last month.
"We will do everything we can," Powell said, "to support a strong labor market as we make further progress toward price stability."