For the first time since 2020, the Federal Reserve seems ready to cut U.S. interest rates in September. US Federal Reserve Chair Jerome Powell is expected to signal support for a rate cut at a major conference on Friday ahead of next month’s decision.
Jerome Powell's Keynote Speech
Powell's keynote speech at the Kansas City Fed's Jackson Hole Economic Symposium is scheduled for Friday at 10 am ET. Powell has indicated a possible rate cut in September, provided the labor market remains stable and inflation continues to fall.
Rate Cut Size
The Fed’s benchmark lending rate is currently at a 23-year high of between 5.25% and 5.50%, cooling demand in the world’s largest economy ahead of November’s presidential elections. Deutsche Bank Chief US Economist Matthew Luzzetti said Powell will likely signal an imminent rate cut but not its exact size. The decision on whether to cut by 25 or 50 basis points will depend on incoming data and the next jobs report.
Risks and Further Forecasts
As inflation continues to move towards its 2% target, the US Central Bank seems poised to start cutting rates. With Congress’s dual mandate on combating inflation and unemployment, the Fed has been indicating a balanced approach. Nigel Green, CEO of DeVere Group, noted that the dollar’s 2.2% drop against a basket of currencies in August suggests a shift in investor sentiment in anticipation of rate cuts.
With risks related to inflation and employment stabilizing, the Fed is likely to cut interest rates in the coming months. Investors are recommended to reassess their strategies considering possible dollar exchange rate changes.
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