In a closely watched speech at the annual Jackson Hole retreat, Federal Reserve Chair Jerome Powell signaled that interest rate cuts are on the horizon, though he refrained from specifying the timing or magnitude of such adjustments. "The time has come for policy to adjust," Powell declared, emphasizing that future rate decisions will be guided by incoming economic data, evolving forecasts, and the balance of risks.

Powell highlighted the substantial progress made in reducing inflation, which has retreated significantly from its peak of over 7% in June 2022 to a current rate of 2.5%, nearing the Fed’s 2% target. He also noted that the labor market has cooled, with unemployment rising modestly to 4.3%, but attributed this to an increase in workforce participation and slower hiring, rather than widespread layoffs.

The Fed's dual mandate—balancing price stability with full employment—remains central to its strategy. Powell assured that the Fed would do "everything we can" to sustain a strong labor market while continuing to curb inflation.

As Powell spoke, markets reacted positively, with stocks gaining and Treasury yields falling. Traders are now fully pricing in at least a quarter-point rate cut in September, with the possibility of a half-point cut rising to about one-in-three.

Powell's comments come as the Fed nears its inflation target but stops short of confirming when rate cuts will commence. While the Fed’s July meeting minutes suggest broad support for a September cut, Powell’s remarks underscore a cautious approach, indicating that the central bank will remain data-dependent as it navigates the delicate balance of maintaining economic stability and curbing inflation.