Jerome Powell Announces Imminent Rate Cut as Inflation Stabilizes
Jerome Powell, the Chairman of the Federal Reserve, has announced an imminent reduction in interest rates, citing increased confidence in inflation trajectory and a cooling job market. This marks a turning point after a period of continuous rate hikes.
The markets reacted positively to Powell’s announcement, with Bitcoin rising over 1% to nearly $62,000.
The Fed raised rates to a range of 5.25% to 5.50% to combat inflation, but with inflation stabilizing towards the 2% target, the Fed could cut rates by 0.25% or 0.5% at its meeting in September, a decision eagerly awaited by the markets.
Powell Confirms Anticipated Rate Cut
Jerome Powell, Chairman of the Federal Reserve, confirmed what the markets had been anticipating for months: an imminent reduction in interest rates.
In his highly anticipated speech at the Jackson Hole Symposium organized by the Fed, Powell declared that ‘the time has come to adjust monetary policy.’ This announcement marks a significant turning point after a long period of raising interest rates to combat soaring inflation.
A Response to Favorable Economic Signals
‘I am increasingly confident that inflation is on track to reach 2%.’
Jerome Powell
Powell explained that his confidence in inflation trajectory had strengthened and that the measures taken by the Fed had helped cool down an overheating job market. ‘The job market has significantly calmed down,’ he emphasized, while also stating that the Fed does not want to see this trend continue excessively. This message, although widely expected, was perceived as more accommodative than anticipated, prompting positive market reactions.
In the minutes following Powell’s speech, Bitcoin immediately rose by over 1%, approaching $62,000. Traditional markets also recorded significant gains: the Nasdaq increased by 1.7%, the S&P 500 by 1.2%, and gold climbed by 1%.
‘The current level of rates provides enough room to respond to risks.’
Jerome Powell
The Path of Rate Reduction
Since early 2022, the Fed has embarked on a series of rate hikes to contain inflation, raising the federal funds rate to a range of 5.25% to 5.50% by 2023. With inflation now seemingly stabilizing towards the 2% target, the Fed appears ready to reverse this trend. However, the question remains whether this rate cut will be 0.25% or 0.5% at the Fed’s meeting in September.
According to current data from CME FedWatch, the markets are still leaning towards a 0.25% reduction, but the probability of a more aggressive 0.5% cut has increased from 24% to 32.5% in just one day.
