The Time Has Finally Come for That Long-Awaited Rate Cut

It’s time. Even Jerome Powell said so. The Federal Reserve is poised to cut interest-rates next month, more than 2 ½ years after it started hiking borrowing costs in order to crush pandemic-spurred inflation. “The time has come for policy to adjust,” Powell said Friday at the annual conference in Jackson Hole, Wyoming. “The direction of travel is clear.” Powell and his fellow Fed policymakers, after holding rates “higher for longer,” are now walking a tightrope between trying to continue to slow inflation and protect the US job market. Recently, signals including a weaker-than-expected July jobs report have bubbled up, potential signs the Fed’s slowdown is working, or that it overshot. Powell pointed to recent progress on inflation. “My confidence has grown that inflation is on a sustainable path back to 2%,” he said. More proof will come next week with a reading of the central bank’s preferred inflation gauge, the core price index.

A rate cut in September is all but assured. After attacks on Powell and company (with the derisive moniker “team transitory”) for being late to raise rates in response to the Covid inflation surge, his remarks underscore how Fed officials are hoping to avoid another policy error. Many of those critics spent the past few years being wrong in their predictions of a downturn. Now the Fed’s success or failure will determine whether there’s a soft landing.