Scripps News Life

Fed chair plans to drop interest rates as 'inflation has declined significantly'

Annual inflation, once topping 9% in 2022, was at 2.9% in July, according to the consumer price index.
Jerome Powell
Posted
and last updated

In remarks from Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell said that the board plans to lower interest rates soon, the first drop since early in the pandemic. The Federal Reserve meets in September and could drop rates then.

Powell said on Friday that "the time has come for the policy to adjust."

The federal interest rate has climbed to a 23-year high and has remained there since last August.

The Federal Reserve surprised some at its late July meeting by not dropping rates. Interest rates have remained at their highest levels since early 2001 for the last 12 months — between 5.25% and 5.5%.

RELATED STORY | Potential homebuyers could face steep mortgages due to interest rates staying put

The Federal Reserve implemented a series of interest rate hikes in 2022 and 2023 to combat high inflation. Powell has stated the Federal Reserve's goal is to reduce inflation to an annualized rate of 2%.

“Inflation has declined significantly, the labor market is no longer overheated and conditions are less tight than those that prevailed before the pandemic," Powell said. "Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes."

RELATED STORY | Federal interest rates will not drop until at least September, officials announce

The unemployment rate ticked up to 4.3% in July, the highest it has been since October 2021. In historical terms, a 4.3% unemployment rate is low, but it comes after a period of near-record-low unemployment. The unemployment rate bottomed at 3.4% in 2023.

Annual inflation, once topping 9% in 2022, was at 2.9% in July, according to the consumer price index.

"We do not seek or welcome additional cooling in labor market conditions," Powell said. "Overall, the economy continues to grow at a solid pace, but the inflation and labor market data show an involving situation. The upside risks of inflation have diminished, while the downside risks to employment have increased."