US Federal Reserve Chairman Jerome Powell is clearly preparing financial markets for an upcoming interest rate change. “It’s time to adjust monetary policy,” he said in a speech Friday at the Fed’s meeting in Jackson Hole, Wyoming. Towards deregulation, the direction is clear.
However, he left it completely open to the extent of the rate cut at the next meeting on September 18. Instead, he pointed to important upcoming economic data that will influence the decision. In particular, he noted that the US labor market is weakening, while inflation is not 100 percent in focus. “As we move further toward price stability, we will do everything we can to support a strong labor market,” Powell stressed.
The current interest rate level gives the central bank plenty of room to react to any risks, such as a further unfavorable deterioration in labor market conditions. New labor market data will be released in early September.
Economists expect the US key interest rate to be cut by a quarter of a percentage point to 5.5 percent from the current 5.25 percent. It was the first cut since March 2020, when the central bank responded to the economic downturn during the coronavirus pandemic. Also, smaller steps downwards to the same extent can be followed in both meetings in November and December.
Market reaction after Powell’s speech was positive and showed that the central banker delivered what markets expected from him. US stock markets posted substantial gains throughout the day on Friday. The leading European indices also opened the weekend on a positive note. For example, the German DAX rose 0.8 percent, while the Vienna ATX rose 1 percent.
Tech giants are on the rise
The prospect of an immediate easing of monetary policy in the US has particularly helped stocks of key technology companies, whose prices have come under some pressure recently. Shares of industry giants such as Microsoft, Amazon, Apple and Alphabet rose between half a percent and one percent. Falling interest rates support the business of tech companies because they make the investments that are critical to their growth cheaper.
The price of gold, which had already risen significantly in the past few days, also moved upwards. A troy ounce of the precious metal was trading at $2,513 in London on Friday. This is more than one percent. Expected reactions occurred on the currency front as well. Following Powell’s statements on Friday, the euro’s exchange rate rose to its highest level in a year. The common currency was quoted at $1.1183 in the afternoon.
