The news that investors, developers, builders, and just about everyone else have long been waiting for was revealed, just barely, in Jackson Hole, Wyoming late last week.
“The time has come for policy to adjust,” Federal Reserve Chairman Jerome Powell remarked during an annual economic symposium, adding: “The direction of travel is clear.”
While not offering a specific date for when the Federal Reserve might actually make an official announcement, Powell let it be known that the country’s central banking system was on the verge of lowering interest rates that have stayed in the same 5.2% and 5.5% neighborhood for the last year.
Hints of a coming lower rate announcement could be found in Power’s opening statement at the symposium sponsored by the Federal Reserve Bank of Kansas City.
“The worst of the pandemic-related economic distortions are fading. Inflation has declined significantly,” he said. “The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic.”
To this rosy picture, Powell also noted that “supply constraints have normalized.”
As though trying to explain a rate policy that since the summer of 2023 has left many economists confused, Power remarked: “Our objective has been to restore price stability while maintaining a strong labor market.”
That rate policy has also been designed, he said, to avoid “the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored.”
Somewhat trying to tamp down expectations, Power made sure to add: “While the task is not complete, we have made a good deal of progress toward that outcome.”
What happens next, and when, is anyone’s guess. Powell’s remarks “came as close as possible to teeing up a cut at the Fed’s next policy meeting in mid-September,” said the Washington Post. “The Federal Reserve will cut rates on September 18,” boldly predicted the New York Times.
For his part, Powell said calibrating an effective interest rate is not for the faint of heart. “The limits of our knowledge, so clearly evident during the pandemic, demand humility and a questioning spirit focused on learning lessons from the past and applying them flexibly to our current challenges.”
By Garry Boulard
Image Credit: Courtesy of Pixabay