Powell Gives Markets Clear Rate-Cut SignalPowellGivesMarketsClearRate-CutSignal

Federal Reserve Chair Jay Powell used his speech at the central bank’s summit in Jackson Hole to send markets a clear signal that policymakers are ready to cut interest rates. “The upside risks to inflation have diminished. And the downside risks to employment have increased,” Powell said on Friday at the Fed’s annual gathering in Wyoming’s Grand Teton National Park. He added: “The time has come for policy to adjust.” Meanwhile, the Bank of England, which issued its first rate cut since 2020 in early August, may need to maintain a restrictive policy stance for an extended period, Governor Andrew Bailey said in a speech. Bailey warned that structural changes to product and labor markets may be a “lasting legacy” of recent economic shocks, forcing the central bank to keep rates higher for longer.

The timing and pace of the Fed’s rate cuts will depend on incoming data and how risks to inflation and the labor market evolve, Powell said. Officials will get a fresh look at the state of inflation on Friday with the release of the personal consumption expenditures (PCE) report. Economists estimated that the core PCE price index hit 2.7% year-over-year in July, up from 2.6%. However, including food and energy costs, PCE inflation was on track to remain flat at 2.5%. PGIM Fixed Income Co-CIO Gregory Peters explains why the case for bonds is appealing, especially when the Fed is either on hold or cutting rates.