The Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming is coming to a close.
Here are some of the key takeaways from the conference:
Powell pivot
Fed Chairman Jerome Powell’s long-awaited speech confirmed expectations for a rate cut at the central bank’s next meeting on September 17 and 18. strengthening stock prices and treasure chests.
“The time has come to change policy,” Powell said Friday. “The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Powell said he is more confident that inflation is moving toward the Fed’s 2% target, while acknowledging there is an “undeniable” cooling in the labor market. “We do not seek or welcome any further cooling of labor market conditions,” he said.
While Powell provided few details on how the Fed might move forward on borrowing costs after the September meeting, he did emphasize the need to focus on lessons learned from the central bank’s upcoming framework review.
International view
Powell was not the only central banker to signal that interest rates are firmly on their way down.
Bank of England Governor Andrew Bailey said on Friday that while it is “too early to declare victory over inflation”, the risks of continued price pressures appear to be subsiding. Britain’s central bank cut its benchmark interest rate earlier this month, and its comments suggested it is growing more confident on further interest rate cuts.
Meanwhile, several members of the European Central Bank’s Governing Council present at the conference said they would support another rate cut next month. That group included the Finn Olli Rehn, the Latvian Martins Kazaks, the Croatian Boris Vujcic and the Portuguese Mario Centeno.
The ECB reduced loan costs in June. Centeno called a decision to ease rates in less than three weeks “easy” given inflation and growth data.
Path forward
On the sidelines of the conference, a number of Fed officials offered timely insights on the economy and hints about the road ahead.
Philadelphia Fed President Patrick Harker said rate cuts “methodical.” He agreed that it is time to cut rates, adding: “Just start the process and keep it moving.”
Susan Collins of Boston expressed a similar sentiment Thursday, noting that “a gradual, methodical pace” of cuts is likely appropriate.
Papers and panels
At its core, the three-day conference is academic in nature. Economists presented four research papers, all related to the theme ‘Reappraisal of Monetary Policy Effectiveness and Transmission’.
Perhaps most relevant to the current economic moment – given the increasing focus on employment – was the research of Pierpaolo Benigno of the University of Bern and Professor Gauti Eggertsson of Brown University. They concluded that the slowdown in the labor market is approaching a turning point, where further slowdown could trigger a much larger increase in U.S. unemployment.
In a panel discussion Saturday with Roberto Campos Neto of Brazil and Ida Wolden Bache of Norges Bank, ECB chief economist Philip Lane said the return to 2% inflation “not yet safe.” Campos Neto meanwhile said a tight labor market has made curbing inflation a challenge.
