On Friday, US Federal Reserve Chairman Jerome Powell delivered the opening speech of the weekend-long Jackson Hole symposium. Powell’s comments cemented expectations that the US Fed will begin easing monetary policy at its September FOMC meeting. The chairman believes that it is time for the Fed to adjust monetary policy as the direction of the economy has become clear. The labour market has started to cool, and given the Fed’s dual mandate -inflation targeting and maximizing employment- the central bank does not welcome any further cooling of the labour market. On the inflation front, Powell noted that US inflation is on a sustainable path back to the Fed’s 2.0% CPI target and expressed that risks generating higher inflation pressures have subsided. Optimism for further disinflation led Powell to comment that US monetary policymakers have ample room to respond to weakness in the US labour market through larger rate cuts. Signs that the Fed may achieve its inflation target without causing a sharp increase in unemployment have raised hopes for a soft economic landing.
While the timing of the first rate cut has been all but confirmed, the pace of Fed rate cuts will depend on the incoming macroeconomic data. Overall, the Kansas City Fed’s annual conference emphasized a shift in focus away from inflation and toward labour market conditions. Chicago Fed President Austan Goolsbee added to the dovish rhetoric and stated that current monetary policy is no longer in sync with economic conditions. As such Fed fund futures are fully pricing in a 25 basis point (0.25%) cut to the US upper policy interest rate of 5.50% in September and over 100 basis points (1.0%) of cuts by year’s end. Furthermore, the market is positioned for 200 basis points (2.0%) of cuts to come over the next year.