📍Key Points
1. Adopting a new framework for monetary assessment
Powell announced an update to the Federal Reserve's operational framework, abandoning the "makeup strategy" that allowed exceeding the inflation target to compensate for periods of low inflation, which has become outdated amid the inflation surge due to the COVID-19 pandemic. He reaffirmed the Fed's commitment to adopting a flexible policy to target inflation, focusing on stabilizing long-term price expectations.
2. Opening the door for a potential interest rate cut
Powell indicated the possibility of lowering interest rates during the Federal Reserve meeting in mid-September, explaining that "the changing horizon of risks may warrant a shift in our policy stance" amid "unusual" labor market conditions and a slowdown in labor supply and demand.
3. The impact of the message on financial markets
The speech removed the uncertainty in the markets: U.S. stock indices rose significantly after Powell's speech, with the Dow Jones index increasing by about 670 points, reflecting renewed optimism regarding the possibility of interest rate cuts.
4. Balancing inflation and the labor market
Powell clarified that inflation remains high, at around 2.7% (above the Fed's target of 2%), with clear impacts from ongoing tariffs on domestic prices. He also warned that the labor market, despite low unemployment, is experiencing a notable slowdown in hiring.
