Powell’s Jackson Hole speech sets bar low for big cuts to ensure soft landing Via Investing.com

Investing.com — Federal Reserve Chairman Jerome Powell gave a dovish speech at the Jackson Hole Symposium on Friday, signaling the central bank would be willing to offer more interest rate cuts to ensure a soft landing.

“The time has come for policy to adjust,” Powell said, vowing to do “everything we can to maintain the strength of the labor market as the Fed continues to reduce inflation toward its 2 percent target.”

The Fed chairman’s focus on maintaining labor market strength suggests that “the Fed is open to 50 if incoming data suggests this may be necessary to overcome the deterioration in the employment risk balance,” Evercore ISI said in the note Friday.

Powell, however, did not hint at whether the Fed would cut by 25 basis points or 50 bps, but said that “the direction of travel is clear and the timing and pace of rate cuts will depend on the data received, the outlook and balance. of risks”.

Still, leaving the door open for higher cuts resembles “macro-insurance, the Fed macro said, which is also indirectly favorable to the market,” it added.

The Fed chairman said data on inflation and the labor market “point to an evolving situation” as upside risks to inflation are receding but downside risks to employment are rising, supporting the case for rate cuts from the current range of 5.25% to 5.5%.

While traders believe a cut of 25 bps in September is the most likely outcome, the odds of a cut of more than 50 bps rose to 36% from 28% the previous day, according to Investing.com

Powell’s comments backed up bets on rate cuts seen in the market rate curve, which determines the real cost of borrowing in the economy at different durations, Evercore ISI added, and should “alleviate concerns” that the Fed will last too much to cut rates or “being behind the curve.”

The comments come ahead of key economic data next week, including the PCE price index for July on Friday.