UPDATE - US Fed chair signals upcoming interest rate cut, saying 'time has come' for adjustment in monetary policy

UPDATES WITH ADDITIONAL REMARKS; BACKGROUND

By Ovunc Kutlu

ISTANBUL (AA) – In much-anticipated remarks, US Federal Reserve Chair Jerome Powell on Friday signaled a coming interest rate cut, saying the "time has come" for an adjustment in monetary policy.

"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," he told the annual Jackson Hole symposium in the US state of Wyoming.

"We will do everything we can to support a strong labor market as we make further progress toward price stability," he said. "With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market."

Powell said his confidence has grown that inflation is on a sustainable path back to 2%, adding that the Federal Open Market Committee (FOMC) does not seek or welcome further cooling in labor market conditions.

"Overall, the economy continues to grow at a solid pace. But the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased," he explained.

Powell noted that headline inflation hit 6% by early 2022, with core inflation climbing above 5%.

He said the pandemic-related distortions to supply and demand, as well as severe shocks to energy and commodity markets, were important drivers of high inflation; however their reversal has been a key part of decline.

"The unwinding of these factors took much longer than expected but ultimately played a large role in the subsequent disinflation," he said.

"Our restrictive monetary policy contributed to a moderation in aggregate demand, which combined with improvements in aggregate supply to reduce inflationary pressures while allowing growth to continue at a healthy pace," he added.

The Fed chair said the worst of the pandemic-related economic distortions are fading four and a half years after COVID-19's arrival, adding: "Inflation has declined significantly."

"The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic. Supply constraints have normalized," he said.

Powell stressed that disinflation while preserving labor market strength is only possible with the public's confidence that the central bank will bring down inflation down to about 2% over time.

Consumer inflation in the US annually rose 2.9% in July, slowing down from a year-on-year increase of 3% seen in June. The figure is a sharp decline from the 9.1% annual gain recorded in July 2022, which was the highest since November 1981.

The Fed has made a total of 11 interest rate increases between March 2022 and July 2023 to tame the record inflation, carrying the federal funds rate to the 5.25%-5.5% target range – the highest in 22 years.

The central bank skipped four rate hikes last year, and five more this year.

Its next two-day meeting will conclude on Sept. 18 when it is widely expected to lower interest rate by 25 basis points -- its first rate cut since a series of lowering rates during March 2020 at the beginning of the pandemic.