The Federal Reserve is sending its clearest signals yet that interest rate cuts are on the horizon, following new data showing inflation has cooled to 2.4% — its lowest level in three years and within striking distance of the central bank's 2% target.
Speaking at the annual Jackson Hole economic symposium, Fed Chair Jerome Powell said "the time has come for policy to adjust," a marked shift in tone that sent the S&P 500 up 1.8% and the Nasdaq up 2.3% in afternoon trading.
The Consumer Price Index for August showed core inflation — which strips out volatile food and energy prices — rose just 0.1% month-over-month, well below economists' expectations of 0.2%. Shelter costs, which have been a stubborn contributor to inflation, finally showed signs of easing.
"We are seeing the progress we've been looking for," said Chicago Fed President Austan Goolsbee in a separate interview. "The data is telling us inflation is returning to target, and that gives us the flexibility to focus on both sides of our dual mandate."
Markets are now pricing in a 70% probability of a 50-basis-point cut at the September FOMC meeting, with additional cuts expected in November and December. The 10-year Treasury yield fell to 3.65%, its lowest since June.
For consumers, rate cuts would mean lower borrowing costs on mortgages, auto loans, and credit cards. The average 30-year fixed mortgage rate has already dropped to 6.2% from its peak of 7.8%, and further declines are expected if the Fed follows through.
