Powell at Jackson Hole: 'The time has come' for the Fed to soon begin reducing interest rates

JACKSON, Wyoming (AP) — With inflation nearly defeated and the job market cooling, the Federal Reserve is prepared to start cutting its key interest rate from its current 23-year high, Chair Jerome Powell said Friday.

Powell did not say when rate cuts would begin or how large they might be, but the Fed is widely expected to announce a modest quarter-point cut in its benchmark rate when it meets in mid-September.

“The time has come for policy to adjust," Powell said in his keynote speech at the Fed's annual economic conference in Jackson Hole, 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.”

His reference to multiple rate cuts was the only hint that a series of reductions is likely, as economists have forecast. Powell stressed that inflation, after the worst price spike in four decades inflicted pain on millions of households, appears largely under control. According to the Fed’s preferred measure, inflation fell to 2.5% last month, far below its peak of 7.1% two years ago and only slightly above the central bank’s 2% target level.

“My confidence has grown," he said, “that inflation is on a sustainable path back to 2%.”

Powell’s assessment signaled that the Fed is making a fundamental shift from its 2 1/2-year fight against inflation, toward a broader effort to keep the economy growing and employers hiring.

The Fed chair's assurance that rate cuts are coming helped fuel a rally on Wall Street. Bond yields fell and stock indexes were broadly higher.

“The only question remaining for the Sept. 18 meeting is: By how much will the Fed be cutting?” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.

“The outcome of the August employment report," which will be reported Sept. 6, LaVorgna said, "is obviously critical.” If that report shows a second straight month of weak hiring, the Fed may cut its key rate by a more aggressive half-point.

Most economists expect the Fed to cut its benchmark rate by a quarter-point at each of its final three meetings this year. Wall Street traders, though, foresee a one-in-three likelihood that the Fed will cut by a half-point at one of those meetings, according to futures prices. A lower Fed benchmark rate will lead eventually to lower rates for auto loans, mortgages and other forms of consumer borrowing and could also boost stock prices.

In his remarks Friday, the Fed chair suggested that rate cuts should help extend the much sought-after “soft landing,” whereby inflation falls back to the Fed’s 2% target without a recession occurring.

Continued growth could boost Vice President Kamala Harris' presidential campaign, even as most Americans say they're dissatisfied with the Biden-Harris administration's economic record, largely because average prices remain far above where they were before the pandemic.

“We will do everything we can," Powell said, “to support a strong labor market as we make further progress toward price stability.”

By cutting rates, he said, “there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.”

A rate cut in mid-September, coming less than two months before the presidential election, could bring some unwelcome political heat on the Fed, which seeks to avoid becoming entangled in election-year politics. Former President Donald Trump has argued that the Fed shouldn’t cut rates so close to an election. But Powell has repeatedly underscored that the central bank would make its rate decisions based purely on economic data, without regard to the political calendar.

In his remarks, Powell said the Fed has grown concerned about slower hiring and a rising unemployment rate, even while it still wants to see inflation fall further. That dual focus is replacing the Fed's previous singular focus on inflation.

“The cooling in labor market conditions is unmistakable,” the Fed chair said. “Job gains remain solid but have slowed this year. ... We do not seek or welcome further cooling in labor market conditions."

In what amounted to something of a victory lap, Powell noted in his speech that the Fed had succeeded in conquering high inflation without causing a recession or a sharp rise in unemployment, which many economists had long predicted.

The soft landing "did come as a big surprise to the (economics) profession,” Gauti Eggertson, an economist at Brown University, said during a presentation Friday at the Jackson Hole conference.

He attributed that outcome to the unraveling of the pandemic's disruptions to supply chains and labor markets and a reduction in job vacancies, which allowed wage growth to cool.

Powell also noted that, according to surveys and financial market gauges, Americans never really expected high inflation to stick. Such expectations can become self-fulfilling: If people expect inflation to stay high, they typically demand ever-higher pay or they accelerate their purchases before prices rise still further. Those steps can perpetuate higher inflation.

But “inflation expectations” rose only modestly and have since largely fallen back to pre-pandemic levels.

“The healing from pandemic distortions,” the Fed’s rate hikes and the fact that Americans did not expect higher inflation, “have worked together to put inflation on what increasingly appears to be a sustainable path to our 2% objective,” the Fed chair said.

Powell also addressed criticism that the Fed was too slow to raise rates even after inflation had begun surging once the pandemic recession ended. Fed officials had initially argued that the price spikes coming out of the pandemic in early 2021 were merely “transitory” and would soon fade as the supply chain disruptions that left some grocery shelves bare and auto lots empty had healed.

He acknowledged that the healing of supply disruptions took much longer than the Fed had expected — and so did the persistence of high inflation.

“The good ship transitory was a crowded one, with most mainstream analysts and advanced-economy central bankers on board,” Powell said. “I think I see some ship-mates out there today,” he said, in an ad-libbed remark addressed to the economists and central banks assembled for the conference.

FILE - A bank of television screens on the floor of the New York Stock Exchange, shows Federal Reserve Chairman Jerome Powell, July 31, 2024. (AP Photo/Richard Drew., File)

Governor of the Bank of Canada Tiff Macklem, left, and Governor of the Bank of England Andrew Bailey, center, walk with Federal Reserve Chairman Jerome Powell at the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, WY on Friday, Aug. 23, 2024. (AP Photo/Amber Baesler)

Federal Reserve Chairman Jerome Powell, left, Governor of the Bank of Canada Tiff Macklem, center, and Governor of the Bank of England Andrew Bailey chat outside the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Friday, Aug. 23, 2024. (AP Photo Amber Baesler)

Federal Reserve Chairman Jerome Powell walks outside of the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Friday, Aug. 23, 2024. (AP Photo Amber Baesler)

Federal Reserve Chairman Jerome Powell, left, Governor of the Bank of Canada Tiff Macklem, center, and Governor of the Bank of England Andrew Bailey pose for a photo at the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Aug. 23, 2024. (AP Photo/Amber Baesler)

Federal Reserve Chairman Jerome Powell, left, Governor of the Bank of Canada Tiff Macklem, center, and Governor of the Bank of England Andrew Bailey chat outside the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, WY on Aug. 23, 2024. (AP Photo/Amber Baesler)

Federal Reserve Chairman Jerome Powell, left, speaks with Governor of the Bank of Canada Tiff Macklem outside of the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Aug. 23, 2024. (AP Photo/Amber Baesler)

Federal Reserve Chairman Jerome Powell, left, Governor of the Bank of Canada Tiff Macklem, center, and Governor of the Bank of England Andrew Bailey pose for a photo at the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Aug. 23, 2024. (AP Photo/Amber Baesler)

FILE - Federal Reserve Chair Jerome Powell participates in a conversation with Economic Club of Washington, DC, July 15, 2024, in Washington. (AP Photo/Manuel Balce Ceneta, File)

Guests approach Jackson Lake Lodge, the site of the Jackson Hole Economic Symposium, in Grand Teton National Park near Moran, Wyo., on Thursday, Aug. 22, 2024.

Steve Carringer of Tennessee takes a photo of the mountains at Jackson Lake Lodge, the site of the Jackson Hole Economic Symposium, in Grand Teton National Park near Moran, Wyo., on Thursday, Aug. 22, 2024. (AP Photo/Amber Baesler)

KYIV, Ukraine (AP) — The World Health Organization issued a stark warning on Thursday about a potential health crisis in Ukraine as the country faces its third winter of war since Russia's full-scale invasion.

Ongoing Russian airstrikes have severely damaged the nation’s energy and health care infrastructure, leaving millions vulnerable as temperatures drop, officials from the United Nations agency said.

“Ukraine is approaching its third winter amid a full-scale war — likely its most challenging yet. The renewed focus on health is more critical than ever,” Hans Kluge, the WHO’s regional director for Europe, told reporters in Kyiv.

Since the start of Russia's full-scale invasion in February 2022, the U.N. agency has recorded nearly 2,000 attacks on Ukraine’s health care infrastructure, which it said is having a severe impact on the largely public health system.

“Targeted attacks have damaged Ukraine’s energy infrastructure. Frequent power outages are already taking a toll with danger signs for the winter,” Kluge said after a visit to front-line regions in eastern Ukraine.

“This could jeopardize the storage and distribution of vaccines, leading to a rise in vaccine-preventable diseases,” he said. Other concerns, he said, included possible contamination of the water system due to frequent power outages and growing signs of antimicrobial resistance because of a misuse of antibiotics.

“We have stories of wounds that simply will not heal due to resistance to antibiotics," Kluge said. "This could have consequences far beyond Ukraine if drugs become ineffective.”

WHO plans to install 15 heating units at hospitals at risk of further attack as well as a network of treatment clinics in areas where health care access is difficult, as part of initiatives by local Ukrainian authorities and Western governments. The agency is also racing to provide generators and other backup power options, and also help implement state-planned health system reforms.

Early work on those projects, Kluge said, focused on Kharkiv, Ukraine’s second-largest city in the east, which has come under frequent Russian attack. Earlier this week, the agency also announced that it had organized the donation of 23 ambulances to assist medical services in mostly front-line areas.

Three people died and two were wounded after Russia struck Red Cross humanitarian vehicles on Thursday in Donetsk region, President Volodymyr Zelenskyy said.

“The world must react firmly and fundamentally," he wrote in an online post. "Countries and international organizations must not remain indifferent. Only together can the world force Russia to stop this terror and force Moscow to seek peace.”

Follow AP’s coverage of the war in Ukraine at https://apnews.com/hub/russia-ukraine

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe, speaks to media during a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe, left, attends a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Jarno Habicht, WHO Representative in Ukraine speaks to the media during a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe, left, and Doctor Jarno Habicht, WHO Representative in Ukraine speak to the media during a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe speaks to the media during a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe, reads notes before a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)

Doctor Hans Henri P. Kluge, WHO Regional Director for Europe speaks to media during a press conference in Kyiv, Ukraine, Thursday Sept. 12, 2024. (AP Photo/Evgeniy Maloletka)