On August 23, 2024, Federal Reserve Chairman Powell delivered an important speech at the Jackson Hole Annual Meeting, officially announcing that the Federal Reserve has entered a cycle of interest rate cuts. He emphasized that now is a critical moment for adjusting policies, the direction of progress is clear, and the timing and speed of interest rate cuts will be flexibly determined based on future economic data, changing prospects, and the balance of risks.
Economic Status and Policy Outlook
Powell first reviewed the economic situation after the epidemic. He said that after four and a half years of epidemic challenges, the serious distortions in the economy are gradually fading. The inflation rate has dropped significantly, the labor market is no longer as overheated as before, and the current environment is more relaxed than before the epidemic. He mentioned that the risk balance between the two major tasks of the Federal Reserve - restoring price stability and maintaining a strong labor market - has changed.
Dual considerations of inflation and employment
Speaking of inflation, Powell pointed out that the inflation rate has been well above the 2% target for most of the past three years, but the situation is now improving. He said that with the implementation of tight monetary policy, inflation has clearly fallen back, and he is optimistic about this and believes that inflation will return to the target level sustainably.
As for the job market, Powell said that although the labor market has cooled, there has been no large-scale layoffs, but rather a combination of increased labor supply and slower hiring. He stressed that the current labor market conditions are still relatively loose and are unlikely to become a new source of inflationary pressure.
Necessity and flexibility of interest rate cuts
When talking about future policies, Powell made it clear that it is time to adjust policies. He said the Fed will closely monitor changes in economic data, as well as the evolving economic outlook and risks, and flexibly adjust the pace and magnitude of interest rate cuts. He emphasized that the Fed's top priority is to support a strong labor market while continuing to advance the goal of price stability.
Impact of the epidemic on the economy and reflection
Powell also reviewed the profound impact of the epidemic on the economy. He mentioned that the economy suffered a severe impact in the early stage of the epidemic, but thanks to the timely intervention of the government and the Federal Reserve, the economy recovered quickly. He also pointed out that the supply and demand distortion caused by the epidemic and the impact on the energy and commodity markets are one of the important reasons for high inflation. He emphasized that the Federal Reserve has shown firm determination and flexible strategies in dealing with these challenges.
Conclusion:
Finally, Powell said that the pandemic economy is an unprecedented special period, and there are many things to learn and reflect on. He emphasized that the Fed will maintain a humble and skeptical spirit, continue to learn lessons from the past, and flexibly respond to current and future challenges. He called on all sectors to maintain an open and understanding attitude towards the Fed's decision-making and jointly promote the continued healthy development of the economy.
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