Speaking in his most closely watched speech of the year, Jerome H. Powell, the chair of the US Federal Reserve, clearly signalled that the central bank was poised to cut interest rates in September.

And while Powell stopped short of giving a clear hint at just how large that move might be, he forcefully underscored that the central bank stands prepared to adjust policy to protect the job market from weakening further and to keep the economy on a path for a soft landing.

“The time has come for policy to adjust,” Powell said during the Kansas City Fed’s annual conference at Jackson Hole in 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.”

He then added: “We will do everything we can to support a strong labour market as we make further progress toward price stability.”

Powell’s speech — his firmest declaration yet that the Fed is pivoting its stance on policy — comes as the central bank approaches a critical juncture.

After more than a year of holding interest rates at 5.3 per cent, investors widely expect officials to cut them at the September 17-18 meeting.

Policymakers have been using high rates to try to cool the economy and, by doing so, wrestle down rapid inflation.

But with price increases now slowing substantially and the job market showing signs of pulling back, officials have been indicating that they are preparing to begin dialling back the pressure. The big question now is just how big a September rate cut will be, and how rapidly the Fed will lower borrowing costs in the months that follow. Policymakers meet again in November and December.

Powell did not provide a clear outline for the path ahead, but by focusing on risks to the labour market, he did clearly hint that central bankers are willing to cut interest rates quickly rather than gradually if the job market appears to be at risk.

“We do not seek or welcome further cooling in labour market conditions,” he said, later adding that a strong labour market could be maintained with “an appropriate dialling back of policy restraint”.

The unemployment rate jumped in July, and Fed officials will receive August jobs data on September 6, just ahead of their next meeting.

Powell was clear that central bankers are keenly focused on the possibility of a job market slowdown. “The upside risks to inflation have diminished,” he said.

New York Times News Service