Fed Chair Jerome Powell himself said the time has come for the central bank to cut its key policy rate, affirming widely-held expectations that officials will begin lowering borrowing costs next month and making clear his intention to prevent further cooling in the labor market. “The time has come for policy to adjust,” Powell said in a speech during the annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” His most decisive signal yet that his inflation-fighting mission has been accomplished helped restore order to markets just a few weeks after weaker-than-expected labor data, among other things, triggered a mini-panic. Now the return to calm is creating new riches on Wall Street. The S&P 500 climbed within 1% of an all-time high Friday. Exchange-traded funds tracking Treasuries and corporate bonds shot up. And the VIX index, Wall Street’s fear gauge, settled comfortably below levels denoting nervousness.
Getting the Fed’s start date fixed, and having many of the world’s big central banks paddling in the same direction, removes some anxieties for investors. Officials from three of the world’s major central banks on Friday signaled they are firmly on course to lower—or continue lowering—interest rates in the coming months, marking the beginning of the end for an era of high borrowing costs as the global economy slips out of the grip of post-Covid inflation. Still, tremendous uncertainty and risks remain. Neither Powell nor his counterparts offered much guidance on how quickly they intend to proceed in lowering rates over the next several months.