Fed's Powell: No Rush to Adjust Policy Stance

Federal Reserve Chair Jerome Powell has made it clear that the central bank is in no hurry to adjust its policy stance, despite recent economic data and market expectations. In a speech at the annual Jackson Hole Economic Policy Symposium, Powell emphasized that the Fed will remain data-dependent and will not rush into any decisions without a thorough assessment of the economic landscape.

Powell's cautious approach comes as a surprise to many market participants, who had been pricing in a September interest-rate cut. However, Powell's speech suggests that the Fed is not yet ready to commit to a specific path for monetary policy, and that it will continue to monitor the evolving economic situation before making any decisions.

The Fed chair acknowledged that inflation has been declining, but he also noted that there are still upside risks to inflation. He pointed out that the Fed's preferred inflation gauge, the Personal Consumption Expenditures price index, rose 3% in June from a year earlier, down from the 3.8% rise in May, but still above the target. Additionally, the Consumer Price Index, another closely watched inflation measure, rose 3.2% in July, a faster pace than the 3% in June, although underlying price pressures continued to decelerate that month.

Powell also acknowledged that the labor market has cooled, but he emphasized that it is still relatively strong. The unemployment rate began to rise over a year ago and is now at 4.3%, still low by historical standards. However, Powell noted that most of the increase in unemployment has come over the past six months, and it mainly reflects a substantial increase in the supply of workers and a slowdown from the previously frantic pace of hiring. He also pointed out that job gains remain solid but have slowed this year, and job vacancies have fallen, with the ratio of vacancies to unemployment returning to its pre-pandemic range.

Powell highlighted that the economy continues to grow at a solid pace, but the inflation and labor market data show an evolving situation. He noted that the upside risks to inflation have diminished, and the downside risks to employment have increased. As a result, Powell emphasized that the time has come for policy to adjust, and the direction of travel is clear, but the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.

Powell's speech underscores the Fed's commitment to being data-dependent and responsive to the evolving economic landscape. The central bank will continue to monitor the economic data and assess the balance of risks before making any decisions on monetary policy. Investors should expect the Fed to remain cautious and patient in its approach to adjusting its policy stance, even as market expectations and economic data evolve.

In conclusion, Fed Chair Jerome Powell has made it clear that the central bank is in no hurry to adjust its policy stance, despite recent economic data and market expectations. Powell's cautious approach reflects the Fed's commitment to being data-dependent and responsive to the evolving economic landscape. Investors should expect the Fed to remain cautious and patient in its approach to adjusting its policy stance, even as market expectations and economic data evolve.