The President of the US Federal Reserve Board (FRB) Jerome Powell opened up the possibility of the US central bank cutting interest rates at its meeting in September. He pointed out that the slowdown in the labor market could reduce concerns that increased costs caused by tariffs will fuel inflation, BTA writes.
Throughout the year, the Federal Reserve kept interest rates unchanged due to a stable labor market and uncertainty about the price outlook in the face of sharply increased tariffs.
In his speech at the central bank conference in Jackson Hole, broadcast live on American television channels, however, Powell hinted that the outlook was changing in a direction that could justify resuming interest rate cuts.
After his statement, the dollar weakened sharply, and the euro appreciated to $1.1696, DPA reported. US stock markets also responded with gains, while Frankfurt's DAX index extended its rise to 0.6 percent.
"While the labor market appears to be in balance, it is a curious kind of balance, resulting from a significant slowdown in both the supply and demand for workers. This unusual situation suggests that risks to employment are increasing. And if those risks materialize, they could do so quickly," Powell told an audience of international economists and policymakers at the UFRJ's annual conference in Jackson Hole, Wyoming.
He warned that the tariffs could also lead to more persistent inflationary dynamics that would need to be carefully managed. However, the Fed expects that price pressures from tariffs will gradually ease.
"Our policy is in restrictive territory, but the changing balance of risks may warrant an adjustment," Powell also said, noting that while tariffs are expected to raise prices, the base case is that this impact on inflation will weaken.
This is Powell's eighth and likely final speech at this forum, including several virtual events due to the coronavirus pandemic.