Fed’s Powell Says ‘Time Has Come’ to Cut Rates

Fed’s Powell Says ‘Time Has Come’ to Cut Rates

Reuters
By Yuval Rosenberg and Michael Rainey
Friday, August 23, 2024

Happy Friday! It was a good day for Donald Trump, as Robert F. Kennedy dropped his independent presidential bid and backed the Republican nominee. It’s another twist in a campaign that has been chock full of them over the last two months, but it’s not clear how much of a boost Kennedy can provide the former president or whether a substantial portion of his supporters might flow instead to Vice President Kamala Harris. CNN reports that the Trump camp hopes Kennedy’s exit and endorsement “could prove decisive if certain battlegrounds are decided by thousands of ballots, just as they were in 2020.”

Here's what else is happening.

Harris Makes History — and Promises — in Accepting Democratic Nomination

Vice President Kamala Harris made history Thursday night as she accepted the Democratic Party’s nomination, becoming the first Black woman and first South Asian American to top a major party’s presidential ticket.

In a nearly 40-minute speech, Harris accomplished much of what she needed to do in the biggest moment of her political career. She introduced herself to the nation, sharing her biography as a child of immigrants, a prosecutor fighting “for the people,” and an American success story. And she sprinkled in a heavy dose of optimism and patriotism as she sought to have voters see her as qualified to be president and commander-in-chief.

“I want you to know, I promise to be a president for all Americans,” she said. “You can always trust me to put country above party and self. To hold sacred America’s fundamental principles, from the rule of law, to free and fair elections, to the peaceful transfer of power. I will be a president who unites us around our highest aspirations. A president who leads and listens; who is realistic, practical and has common sense; and always fights for the American people. From the courthouse to the White House, that has been my life’s work.”

Setting the stakes: Harris also sought to define the stakes in this election, calling it the most important in our lives and one of the most critical in the nation’s history. She called for the country “to move past the bitterness, cynicism and divisive battles of the past” — and move past Donald Trump, who she went after directly. “In many ways, Donald Trump is an unserious man,” she said, “but the consequences — but the consequences of putting Donald Trump back in the White House are extremely serious.”

Talking taxes: Harris also included a fair amount of policy in her remarks, from reproductive and voting rights to immigration and national security. Though she didn’t provide lots of specifics, she promised to build an “opportunity economy,” end the nation’s housing shortage and protect Social Security and Medicare. On most of these points, she also sought to draw a contrast with Trump and the conservative Project 2025 agenda Democrats want to tie to him. She claimed that he would give billionaires “another round of tax breaks that will add up to $5 trillion to the national debt” and said he would raise prices on middle-class families via tariffs that amount to a tax increase. “Well, instead of a Trump tax hike, we will pass a middle-class tax cut that will benefit more than 100 million Americans,” she said.

Combatting Trump’s claims: Trump and his allies have tried to portray Harris as a left-wing radical, a communist, a Marxist. “The speech had a large and strategically important defensive dimension” John F. Harris writes at Politico. “Rather than unveiling a markedly left-leaning agenda, Harris mostly presented a composite of priorities that unify most Democrats: Protecting abortion rights, voting rights, and Social Security and Medicare. Even within this familiar terrain, she often played notes that emphasized traditional and tough-minded.”

What’s next: 74 frenzied days, though Harris and Walz don’t have any campaign events scheduled for this weekend.

Fed’s Powell Says ‘Time Has Come’ to Cut Rates

Federal Reserve Chair Jerome Powell on Friday signaled that the central bank plans to start cutting its key interest rate soon, driven in large part by concerns about job growth and the economy.

In a speech at the Kansas City’s Fed’s annual conference in Jackson Hole, Wyoming, Powell said that cooling in the labor market is “unmistakable,” with job gains slowing this year. “It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions,” Powell said. “The time has come for policy to adjust.”

Powell noted that the battle against inflation appeared to stall earlier this year but is now back on track. “My confidence has grown that inflation is on a sustainable path back to 2%,” he said.

Powell added that the “direction of travel is clear,” indicating that rates will be headed lower, with the “timing and pace” of the cuts to be determined by incoming data and the always evolving outlook.

A change in emphasis: Powell’s comments were notable for their focus on the labor market — the other part of the Fed’s dual mandate, along with price stability — as well as economic growth more broadly.

“Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored,” Powell said.

Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, told Bloomberg that Powell’s message “was a very definitive turn away from the singular inflation focus the Fed had.” The change in emphasis means the Fed is “actually now tilting more fully towards defending the expansion against recession. It really seems the inflation worry has faded into the background.”

And maybe a victory lap: Famous for his understated approach, Powell gave no sign that he was declaring victory in the Fed’s war against inflation, and he has said in the past that there would be no moment at which he would declare that a soft landing of low inflation and low unemployment had been achieved. But some analysts saw something like a triumphant moment on Friday nonetheless.

“This was a valedictory of essentially Chair Powell turning the page, saying the mission, which has been focused on inflation for the last two years, has been successful,” economist Paul McCulley told CNBC.

What comes next: The next meeting of the rate-setting Federal Open Market Committee is scheduled for September 17-18, and at this point it seems that the only question is how large the rate cut will be. Stephen Brown of Capital Economics said Friday that the “dovish speech from Chair Jerome Powell at the Jackson Hole Symposium suggests that the Fed will be choosing between a 25bp [basis point] and a 50bp cut at its meeting in September.” The size of the cut will depend in part on the employment numbers for August, which Fed policymakers will review shortly before their next meeting.

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