The possibility of a September interest rate cut just became a much more imminent promise, according to a speech given by Federal Reserve Chair Jerome Powell in Jackson Hole, Wyoming, today.
At the Central Bank’s annual Wyoming retreat, Powell reflected back on the fight against inflation since the pandemic, and gave a preview of the Fed’s upcoming rate decision.
“My confidence has grown that inflation has a sustainable path back to 2%…The time has come for policy to adjust,” said Powell. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Powell explained that while “the economy continues to grow at a solid pace, the inflation and labor market data show an evolving situation.” Specifically, Powell pointed out that the labor market has “cooled considerably,” and is showing worsening signs. The jobs report from July supports this, reporting that unemployment rose to 4.3%, up almost a full percentage point from the same time last year.
“The softening of the job market has given the Fed the confidence that inflation will not reaccelerate,” commented Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni. “There is certainly a risk that the unemployment rate could rise faster and further than the Fed would like, but Chair Powell indicated that they are watching and would react to such a further softening in the job market.”
Powell asserted that the Fed “will do everything we can to support a strong labor market as we make further progress toward price stability with an appropriate dialing back of policy restraint.”
All eyes are now on the upcoming Sept. 17 FOMC meeting to see what will occur when the Fed makes their assumed first rate cut in a series that may last several months.
“The themes in Chair Powell’s speech were largely anticipated by the market, and I don’t expect mortgage rates to move much in response, as investors had already priced in a path for rate cuts,” concluded Fratantoni. “However, the immediate reaction to the speech resulted in some reductions in longer-term Treasuries and secondary mortgage market yields, so mortgage rates may be somewhat lower in the near term. Our forecast continues to look for mortgage rates to drift down closer to 6% over the next 12 months or so.”
For the full speech, click here.
