Fed Rate Cut Looming as Jerome Powell Prepares Major Speech

The Federal Reserve is expected to cut its benchmark interest rate in September as inflation nears the central bank’s 2 percent target, the Associated Press reports, citing officials from the Fed.

While inflation in the U.S. may finally be coming under control, concern is now growing around rising unemployment rates as employers slow down hiring. Following an interest rate cut from its current 23-year high, subsequent cuts would be determined mainly by whether employers keep hiring.

Fed Chair Jerome Powell is expected to provide hints about the Fed’s view of the economy during a speech at the annual conference of central bankers on Friday in Jackson Hole, Wyoming.

A lower Fed benchmark rate would mean buyers seeking car loans, mortgages or other consumer goods would pay less interest. Mortgage rates have already started to drop in anticipation of the cuts.

Economists also believe the job market will become a bigger obstacle for economic growth.

“At this point, it’s right that the Fed is now more focused on labor versus inflation,” said Tom Porcelli, the U.S. chief economist at PGIM Fixed Income, the AP reported. “Their policy is calibrated for inflation that is much higher than this.”

The government recently reported that hiring in July was much less than expected and that the jobless rate reached 4.3 percent, the highest in three years.

Stock prices plunged for two days after the announcement amid fears that the U.S. might fall into a recession.

Last week, healthier economic reports, including another decline in inflation and a rise in retail sales, dispelled most of those concerns.

Wall Street traders now expect three quarter-point Fed cuts in September, November and December, the AP reported—with December possibly seeing a half-point cut.

Some officials have not ruled out a half-point Fed rate cut in September if there are signs of a further slowdown in hiring.

Economists say that even if hiring remains solid, the Fed is set to cut rates this year, given the steady progress that’s been made on inflation.

Raphael Bostic, the president of the Fed’s Atlanta branch, told the AP that “evidence of accelerating weakness in labor markets may warrant a more rapid move, either in terms of the increments of movement or the speed at which we try to get back” to rate levels that no longer restrict the economy.

He added that the economy had changed recently, as just a couple of months ago he was suggesting that a rate cut might be unnecessary until the final three months of the year.