The US Federal Reserve (Fed) has given in and confirmed that it will lower interest rates. “The time has come for (monetary) policy to tighten,” said its president, Jerome Powell, on Friday during the Jackson Hole Symposium, the meeting that brings together Central Banks in the middle of August.
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“My confidence has increased that inflation is on a sustainable path back to 2%,” Powell said.
In his speech, the Fed chairman stressed that the US economy continues to grow at a solid pace, but data on inflation and the labour market show an “evolving” situation, in which the upward risks to prices “have diminished”.
In this regard, Powell believes that, after a pause in early 2024, “progress toward the 2% target has resumed,” so the inflation rate is now much closer to the target. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolution of the outlook, and the balance of risks,” he noted.
Powell’s decision comes just a few weeks after global stock markets experienced a black Monday due to fears of a slowdown in the US economy. Fears of a possible recession, which would lead to job losses, in which excessive monetary austerity by central banks plays a key role, which would now change with the Fed’s decision to lower interest rates.
In July, Powell himself, like his counterpart at the European Central Bank (ECB), Christine Lagarde, held on to “the strength of the labour market” in both economies to delay lowering official interest rates. In the case of the United States, the “price” of money has remained at 5.5% since the end of July last year.
However, Powell’s announcement on Friday does not entail an immediate change in policy, as it will have to wait until the meeting of the Federal Open Market Committee of the Fed scheduled for September 17 and 18.
