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Federal Reserve Chair Jerome Powell highlighted significant shifts in the US economy while speaking at the Jackson Hole Economic Symposium on Friday, signalling an adjustment in monetary policy.
As inflation shows signs of stabilising and the labour market cools from its overheated state, Powell said: "Progress towards our 2% objective has resumed, and my confidence has grown that inflation is on a sustainable path back to 2%."
Time Has Come For Policy Adjustment
Powell acknowledged the progress made in bringing inflation closer to the Fed's 2% target, with prices rising 2.5% over the past 12 months. He attributed this improvement to the Fed's restrictive monetary policy, which has helped restore balance between aggregate supply and demand.
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Labour-Market Dynamics
The labour market, which had been significantly overheated post-pandemic, has now cooled, the Fed chair said.
Unemployment has increased to 4.3%, a level still low by historical standards but higher than the early 2023 figures. Powell pointed out that the rise in unemployment was not due to elevated layoffs but rather a slowdown in hiring and a mismatch in the supply of workers.
He said job vacancies have decreased, and the ratio of vacancies to unemployment returned to pre-pandemic levels, suggesting that labour market conditions were less tight than they were just before the pandemic in 2019.
Jerome PowellWe do not seek or welcome any further cooling in labour-market conditions.Food-Price Politics, Inflation Economics And Central Banks
Post-Pandemic Recovery
Powell also spoke on the post-pandemic recovery, describing it as unlike any other in recent history. He explained that the US took longer to recover from Covid-19 due to a combination of factors, including supply-chain disruptions, a sharp increase in demand for goods, and the impacts of the Russia-Ukraine conflict on commodity and energy prices.
These factors contributed to the inflationary pressures that the Fed has been working to contain.
Jerome PowellThe upside risks to inflation have diminished and the downside risk to employment have increased.
Outlook And Future Policy
Looking ahead, Powell said the worst of the pandemic's economic distortions were fading and the Fed remains vigilant. He reiterated that the timing and pace of any future rate cuts would depend on incoming data, particularly regarding inflation and labour market conditions.
Powell concluded by reaffirming the Fed's commitment to maintaining a strong labour market while achieving price stability. He also said the current policy rate provides ample room to address any emerging risks.
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