In 2022, when the Federal Reserve’s focus shifted to combatting inflation, it had to ratchet up interest rates fast to get monetary policy caught up with fast-rising prices.
The answer will appear in upcoming employment reports and shape how far and fast the Fed will have to cut rates to prevent what Powell called an “unwelcome further weakening in labour market conditions.” “We’re definitely cooling, but are we cooling to a point where we’re going to level out … or is this just a pit stop to a stronger cool down?” Nela Richardson, ADP Research Institute’s chief economist, said on the conference sidelines.
Powell’s remarks completed the journey, saying “the balance of the risks to our two mandates has changed” and policy-makers would “do everything we can to support a strong labour market.”In September officials will update interest rate projections showing their sense of the pace of cuts to come. As recently as June they were still worried about sticky inflation, saw the unemployment rate steady at 4 per cent, and anticipated just a single quarter-percentage-point rate cut this year.
Powell on Friday even somewhat downplayed the 4.3 per cent unemployment rate, regarding it as a result of rising labour supply and slowed hiring, not outright job losses.
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