Federal Reserve Chair Jerome Powell signaled Friday that it's time to adjust monetary policy, effectively paving the way for the beginning of interest rate cuts.

Powell refrained from committing to a predetermined path for rate cuts or providing any hints about their size, emphasizing the decision will depend on incoming data.

"My confidence has grown that inflation is on a sustainable path back to 2 percent," the Fed chair said at the Jackson Hole Symposium.

"The time has come for policy to adjust. 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," he said.

Powell acknowledged that tackling inflation might bring "some pain in the form of higher unemployment and slower growth," but added the current high interest rates provide the Fed with "ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions."

Powell's speech signals the Fed is now placing greater emphasis on its dual mandate — price stability and maximum employment — and shifting away from its previous exclusive focus on inflation.

"The cooling in labor market conditions is unmistakable," Powell said, adding that "we do not seek or welcome further cooling in labor market conditions."

Job gains are still solid but have decelerated this year, he said. Job vacancies have decreased, and the ratio of vacancies to unemployment has returned to its pre-pandemic range, the Fed chair said.

Both hiring and quits rates have dropped below the levels seen in 2018 and 2019, while nominal wage growth has moderated. Overall, labor market conditions are now less tight than they were just before the pandemic in 2019.

The recent rise in unemployment is largely due to a significant increase in the supply of workers and a slowdown from the previously rapid pace of hiring, Powell said.

Market Reactions

Treasury yields tumbled in reaction to the Powell's speech, sending the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) up by 0.8%.

The dollar tumbled against major currencies, with the rate-sensitive dollar-yen pair tumbling 0.6%.

Gold, as tracked by the SPDR Gold Trust (NYSE:GLD), was up over 1%.

Stocks also rose, with the SPDR S&P 500 ETF Trust (NYSE:SPY), up 1%. Small caps rallied, with the iShares Russell 2000 ETF (NYSE:IWM), up by 2.2%.

Illustration created using artificial intelligence via MidJourney.