Powell Ignored the Elephant in the Fed’s Jackson Hole Lodge
The Fed chair said it’s time to adjust policy rates. But he didn’t say by how much, and that’s all that really matters now for bonds.
Interest rate relief
Photographer: Michael Nagle/Bloomberg
Federal Reserve Chair Jerome Powell on Friday removed all doubt that interest rate cuts are just around the corner. “The time has come for policy to adjust,” he said at his much-hyped annual speech in Jackson Hole, Wyoming, setting off a knee-jerk rally in stocks and bonds. Inflation risks have receded while labor market risks have increased, he added, and the central bank wouldn’t “seek or welcome further cooling in labor market conditions.” All of this points to a series of policy rate reductions in the coming quarters.
But before Powell even approached the podium, the market was expecting about 2.25 percentage points worth of easing to take the fed funds rate to around 3%-3.25%. The Fed won’t push markets much further simply by validating those expectations. If longer-term borrowing costs are to continue declining, it will have to come from a reassessment of the Fed’s ultimate destination.