Boost for Home Buyers as Fed Chair Jerome Powell Opens Door to Rate Cuts

Federal Reserve Chair Jerome Powell has suggested that “the time has come” to reduce interest rates, in a boost for home buyers.

In a largely positive speech at Jackson Hole, Wyoming, Powell said that the economy is growing at a “solid pace”.

He said that the “downside risks to employment have increased”, adding that overall “the economy continues to grow at a solid pace.”

Apparently opening the door to future rate cuts, he said: “We are attentive to the risks at both sides of our dual mandate. The time has come for policy to adjust.”

The Federal Open Market Committee its benchmark interest rate is currently in the 5.25%-5.50% range, a 23-year high.

Powell did not specify when or by how much rates may be cut.

He hailed the reserve’s efforts to reduce inflation, which have created room to maneuver for rate cuts.

Four and a half years after the pandemic, he said, “economic distortions are fading.”

“Our objective has been to restore price stability while maintaining a strong labor market, avoiding sharp increases in unemployment that characterized earlier these inflationary episodes,” Powell said.

“While the task is not complete, we’ve made a good deal of progress toward that outcome.”

Powell’s speech was part of the first day of the Federal Reserve Bank of Kansas City’s annual international conference.

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. Rate cuts would be determined mainly by whether employers keep hiring, he suggested.

“For much of the past three years, inflation ran much above our 2% goal and labor market conditions were extremely tight,” Powell said. “The FOMC’s primary focus has been on bringing down inflation.”

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.

However, 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.

“Inflation is now much closer to our objective, with prices having risen 2.5% over the past 12 months,” Powell said. “After a pause earlier this year, progress toward our 2.5% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%.”

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