The pound has hit its highest level against the US dollar since March 2022 after the chair of the Federal Reserve declared that “the time has come” for an interest rate cut.
Jay Powell’s remarks to the US central bank’s annual economic conference at Jackson Hole, Wyoming, did not specify when rate cuts would begin or how large they might be.
But financial markets and economists widely expect a quarter-point reduction in the Fed’s benchmark rate – the first since its hiking cycle began in 2022 – when its rate-setting committee next meets in mid-September.
Money latest:
Warning £2,500 will be added to stamp duty ‘overnight’ in March
“The time has come for policy to adjust,” Mr Powell said.
“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.”
Should predictions prove accurate, the Fed will follow the European Central Bank and Bank of England in starting to adjust policy after sharp rises in interest rates to combat inflation.
The seeds of price growth were sown when economies began to gradually reopen following the COVID pandemic but the pace rose substantially in the wake of Russia’s invasion of Ukraine, taking inflation to a 40-year high.
Inflation across Western economies has proved more stubborn to shake than many expected – with central banks anxious to avoid so-called secondary effects such as prices being stoked further by high wage increases.
In his own speech to the symposium, Bank of England governor Andrew Bailey was due to declare that it was too early to declare that the battle against inflation had been won.
But text of his comments, released in advance by the Bank, showed that he was more confident that the second round effects were smaller than had been expected.
Mr Powell said that the US jobs market was “no longer overheated”.
