The Powell Pivot

It’s the announcement we’ve all been waiting for. In a key Friday speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, WY, Powell made it clear: “The time has come for policy to adjust.”

The stage is now set for the Fed’s mid-Sept meeting when they will likely announce their first rate cut since they began aggressively raising rates in 2020 to combat inflation.

What’s behind the pivot? Labor markets. With a weak July jobs report rattling consumer confidence and an unemployment rate now up to 4.3%, it appears the second of the Fed’s twin mandates - along with lowering inflation - has become the driver for yesterdays’ action. And what about inflation? By crossing below the all-important 3% threshold in July and with a “sustainable path to our 2% objective”, the inflation fear driving tight Fed policy appears to be over.

So what does this all mean? The “Survive until 2025” mantra seems to coming true all too soon. With rate cuts on the way, and potentially more past September and into the election season, relief on the interest rate side is coming soon to borrowers of all sorts. But don’t forgot economic activity. Can such moves by the Fed stave off the much-predicted (and dreaded) recession for a soft-landing instead? Or has the Fed pushed things too far for too long?