At the annual Jackson Hole meeting, Federal Reserve Chairman Jerome Powell announced potential rate cuts following two years of monetary austerity, which could alter market conditions.
An Unexpected Soft Landing
Contrary to forecasts, the US economy achieved a soft landing. In August 2022, [Powell](https://en.wikipedia.org/wiki/Jerome_Powell) warned of potential pains for households and businesses, but inflation decreased without a recession. The unemployment rate remains historically low at 3.5%, and economic growth exceeds expectations.
A Prolonged Landing for the Fed
The US economy hit the inflation target in June 2023, and the soft landing has continued for 14 months. However, the transmission of monetary policy effects to the real economy takes up to 15 months, posing a challenge for Fed policymakers.
The Fed Faces a Dilemma
Monetary policy is considered neutral when interest rates neither stimulate nor slow the economy. The Fed raised rates to combat inflation, and even starting to lower them, it takes time to reach a neutral level. Economists question the necessity and effectiveness of prolonged restrictive monetary policy.
Jerome Powell's speech at Jackson Hole marked a transition for the Fed from aggressive to more moderate measures. The central bank will now seek a balance between price stability and employment support in uncertain conditions.
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