(CercleFinance.com) – Now that inflation is falling and the labor market is slowing, the time has come to adjust the restrictive monetary policy pursued in the United States for more than two years, Jerome Powell, the chairman of the US Federal Reserve.
In a speech at the Jackson Hole Symposium in the state of Wyoming, the Fed chief called for a more accommodating approach from the US central bank.
“The time has come to adjust monetary policy,” he stressed during his speech.
“By adopting our restrictive policy appropriately, there is good reason to believe that the economy can return to 2% inflation while maintaining a strong labor market,” he assured.
From his point of view, there has been some ‘progress’ towards restoring price stability without destabilizing the labor market, although according to him ‘the task is not yet complete’.
However, the Fed chief did not go so far as to send a clear signal about the extent and timing of monetary policy easing that could be expected.
“The direction in which we are moving is clear, but the timing and pace of our rate cuts will depend on upcoming indicators, the evolving outlook and the balance of risks,” he said.
However, Jerome Powell assessed that the current rate level gave the institution sufficient leeway to deal with the current difficulties, including a sudden slowdown in employment.
In financial markets, the remarks from the chairman of the US Federal Reserve were interpreted positively, with Wall Street adding to its gains following the remarks, with the S&P 500 index up 1.7%.
The dollar extended its losses, allowing the euro to rise above 1.1170, where currency traders judged its tone regarding developments in the economy to be positive.
Bond yields are also falling, with ten-year notes falling back below 3.80%.
Meanwhile, expectations for a 50 basis point rate cut after the Sept. 18 meeting are soaring, now reaching 32.5%, compared with 24% yesterday, according to CME’s FedWatch tool.
However, the scenario of a reduction of 25 basis points remains in the majority, with a probability estimated at 67.5% compared to 76% yesterday.
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