📍Main Points
1. Adopting a new framework for monetary assessment
Powell announced an update to the operational framework of the Federal Reserve, abandoning the concept of the "makeup strategy" which allowed for exceeding the inflation target to compensate for periods of below-target inflation, as it has become outdated due to runaway inflation caused by the COVID-19 pandemic. He reiterated 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 likelihood of interest rate cuts during the Federal Reserve's meeting in mid-September, clarifying that "the changing horizon of risks may require us to adjust our policy stance" in light of "strange" labor market conditions and a slowdown in labor supply and demand.
3. The impact of the message on financial markets
The speech removed the hesitation in the markets: US stock indices rose significantly after Powell's speech, with the Dow Jones increasing by approximately 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 effects of ongoing tariffs on domestic prices. He also warned that the labor market, despite low unemployment, is experiencing a noticeable slowdown in hiring.
