Federal Reserve chief Jerome Powell yesterday opened the door to a US interest rate cut next month – sending stock values soaring.
The US central bank chairman said that the ‘shifting balance’ between unemployment and inflation concerns ‘may warrant adjusting our policy stance’.
It follows months of pressure on the Fed chairman from President Donald Trump.
He has insulted Powell, calling him a ‘numbskull’ and ‘stupid’ for not acting sooner, and flirted with the idea of firing him.
But the central bank has resisted, citing the need to wait and assess the impact of the administration’s tariffs and other policies on inflation first.
Recent signs of pressure on the US jobs market have increased speculation that rates will be cut in September.
Bigwigs: Donald Trump has insulted Jerome Powell, calling him a ‘numbskull’ and ‘stupid’ for not acting sooner
And it meant the Fed chief’s speech to an annual gathering of central bankers in Jackson Hole, Wyoming, yesterday was closely scrutinised.
Powell stopped short of committing to a cut but the speech represented a ‘marked shift in tone’, according to Oliver Allen, senior US economist at Pantheon Macroeconomics.
‘A September easing looks nailed on, with more likely to follow,’ said Allen.
Markets rallied, with New York’s Dow Jones and S&P 500 closing in on all-time highs as they climbed by 2 per cent and 1.5 per cent respectively, while the tech-heavy
Nasdaq also climbed by 1.6 per cent.
In London, the FTSE 100 spiked, too, before ending just 0.1 per cent higher. But the 12.20 points rise was still enough to take it to a record closing high of 9321.40.
The pound rose sharply against the US dollar as traders bet on a Fed rate cut coming before any move by the Bank of England, which is now not expected to cut until next year. Sterling leapt by a cent to above $1.35.
Powell acknowledged the balance needed between cutting rates to try to boost jobs and keeping them high to ward off the threat of inflation.
He said evidence suggested ‘downside risks to employment are rising’ and ‘if those risks materialise they can do so quickly’.
And he noted that Trump’s tariffs ‘could spur a more lasting inflation dynamic’, but added the Fed’s central case was that the impact is expected to fade.
He said: ‘The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.’
Analysts at ING Bank said: ‘The key move was the downsizing of the tariff-induced inflation risk.’
Luke Bartholomew, economist at fund manager Aberdeen, said: ‘It is still possible that a big, nasty inflation surprise or a huge recovery in employment data could derail such a cut. But a September move is overwhelmingly the most likely outcome.’
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