In his recent speech, Federal Reserve (Fed) Chairman Jerome Powell focused on the fragilities of the labor market and is preparing markets for the new phase for policy. “The time has come for policy to adjust.” A soft landing looks achievable, barring any shocks. Disinflation while preserving labor market strength is only possible with anchored inflation expectations, so an independent and credible central bank is key. One of the best concepts in the speech for investors to understand is the current data shows an evolving macro landscape. The jury is still out on if the Fed can successfully manage the risks to both sides of their dual mandate.
What a Difference a Year Makes
Last summer, Jerome Powell ended his Jackson Hole speech with an intimidating tone — this tone was almost gone at this year’s symposium. He pivoted his policy inclinations from “We will keep at it until the job is done” to a more calming promise that “The time has come for policy to adjust.”
This clarity is just what the markets wanted. As consumer prices are no longer rising at breakneck speed, the Fed can move on to the other part of its dual mandate for full employment.
The Fragilities of the Job Market
What we learned from Jackson Hole is the Fed is interested in preparing markets for the committee to start cutting rates at the September 18 meeting and to start a measured process of cutting throughout the rest of this year and into next.