'The time has come' to lower interest rates: Fed Chair Jerome Powell

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Federal Reserve chairman Jerome Powell signaled that he and his colleagues will soon be ready to start cutting interest rates, as inflation cools and unemployment inches up. / Getty Images North America

Federal Reserve chairman Jerome Powell says he's increasingly confident that inflation will soon be tamed, setting the stage for the central bank to start cutting interest rates next month.

Speaking at one of the most closely-watched annual gatherings of global central bankers in Jackson Hole, Wyo., Powell noted that inflation has cooled significantly since hitting a four-decade high in 2022.

At the same time, the U.S. job market has begun cooling, with the unemployment rate inching up. To avoid a further weakening, Powell says he and his colleagues will need to start reducing interest rates, which they've kept elevated for over a year.

“The upside risks to inflation have diminished. And the downside risks to employment have increased," Powell said. "The time has come for policy to adjust.”

Investors cheered the chairman's remarks. The Dow Jones Industrial Average jumped more than 300 points while the broader S&P 500 index rose about 1%.

The Fed raised interest rates aggressively in 2022 and 2023, and has kept its benchmark rate at the highest level in more than two decades for over a year. That's made it more expensive to get a car loan, finance a business or carry a balance on your credit card.

Powell cautioned that the timing and speed of interest rate cuts will depend on how the economy performs. Markets anticipate a quarter percentage point cut when policymakers meet in mid-September. A larger, half-point rate cut is possible if the August jobs report — due out eleven days before the Fed meeting — is weaker than expected.