That the Federal Reserve rate cut if it were now a matter of days, many, almost everyone, predicted it. And the minutes of the last meeting in July had also confirmed this. But today, from the symposium of Jackson Hole, in Wyoming, the official announcement came from the governor of the US central bank Jerome Powell. At the next meeting scheduled for September 17-18 the Fed will cut interest rates. And it is not certain that by the end of the year we will not even reach an overall 1% cut.
Powell in Jackson Hole: “The time has come to cut rates”
Jerome Powell says it clearly, sending a message that the markets immediately receive, taking the path of increases with conviction: “The time has come” to reduce interest rates, he said in his speech at the Jackson Hole symposium, explaining that the Fed intends to proceed before a further weakening of the labor market. “We don't want a further slowdown in the job market,” he said, also stressing that by now inflation “has fallen significantly” and which is now “closer to our goal” of 2%.
The Fed president highlighted that “the direction of our work is clear. The timing and extent of rate cuts will depend on upcoming data, the evolving outlook and the balance of risks,” he added, underlining that: “upside risks to inflation have diminished,” while “downside risks to employment have increased”.
Wednesday's review of job creation in the latest fiscal year confirmed the slowdown in the labor market. Data published to date had overestimated the number of jobs created in the US between April 800.000 and March 2023 by more than 2024. Powell also stated that the one percentage point increase in unemployment rate in the last year it was caused above all by the increase in labor supply and the slowdown in hiring, not by the increase in layoffs. And he then remarked that the Fed is determined to prevent any further increase in unemployment.
“We'll do it everything possible to support a job market strong as we make further progress towards price stability,” he explained. “With an appropriate reduction in political moderation, there is good reason to think that the economy will return to 2% inflation while maintaining a strong job market. The current level of our reference rate offers us wide margin for manoeuvre to respond to any risks we may encounter, including the risk of a further unwanted weakening of labor market conditions,” concluded the number one of the American central bank.
Fed: first cut in September, and then?
The monetary tightening has therefore come to an end and on 17-18 September there will be a first cut of 0,25%. We'll see about the other two rate cuts of 0,25% forecast by analysts for November and December. In fact, there might even be one a cut of 0,50% in one of the three meetings, bringing the 2024 total at 1%, provided that the outgoing financial and economic data support this hypothesis.
The reaction of the Stock Exchanges
Powell's words immediately sent prices higher Wall Street. At this time, the Dow Jones earns over 1%, as does the S & P 500, while the Nasdaq runs, marking an increase of 1,33%. The European stock markets are also accelerating, and after a cautious day, are set to close the last session of the week with a marked rise, with Business Square which recorded one of the best continental performances, advancing by 0,96% a few minutes before closing.
