With the clock ticking, the time has come for Fed cuts
Powell said “The time has come for policy to adjust” (towards lower rates)…
In our view, Chair Powell’s dovish speech at the 2024 Jackson Hole Economic Symposium closes any lingering debate about whether a pivot to an easing cycle has occurred. The speech was consistent with the takeaway from the July minutes as well—the only thing left is just launching cuts in September. The Fed has notably moved, and in such short order, away from its focus on the inflation side of the dual mandate to now being more concerned about the labor market. We believe this pivot towards an easing bias is because the Fed is finally catching up to the reality that the labor market isn't as robust as they initially thought.
In terms of policy implications, nothing we heard in the speech was hawkish or pushed back on market pricing. Powell did not suggest that the first cut is restricted to 25 bps (i.e. slow normalization), nor did he indicate that a 50 bps cut (which remains our base case) is off the table.
Our view remains that easing more at the start of the upcoming cycle means that the Fed can potentially cut less overall, but the clock is ticking. The lack of forward guidance on the magnitude of rate cuts suggests to us that the Fed is keeping the door open to easing by 50 bps, especially as it goes into the blackout period ahead of its September meeting (right after NFP). If NFP is weak like we expect and that triggers risk-off, the Fed will likely cut by 50 bps.
