Much more than a hint

The much-anticipated Fed rate cutting cycle will begin in September. Speaking this morning at the KC Fed's annual Jackson Hole symposium, Fed Chair Jerome Powell made that perfectly clear:

"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".

Powell began his remarks by reviewing how recent economic data meant that it was now appropriate for the Fed to worry less about inflation and instead pay more attention to the deterioration in the labour market. It's arguable that this was a decision the Fed could and should have reached before the July FOMC meeting, so it seems very likely that the large downward revision in monthly employment data revealed by the BLS earlier this week played a role in the Fed's timing. 

Be that as it may, the Fed remains confident that it is shifting gears at the right time:

"So far, rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn. Rather, the increase mainly reflects a substantial increase in the supply of workers and a slowdown from the previously frantic pace of hiring. Even so, the cooling in labor market conditions is unmistakable. Job gains remain solid but have slowed this year".

And: 

"With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions".

It is very unusual for a central banker to tip their hand like that, so there can be no doubt that the Fed will follow through with a rate cut at the September 18 FOMC meeting. It remains overwhelmingly likely that the first move will be a 25 basis point cut, rather than anything larger.  There is nothing in Powell's remarks to suggest that the Fed thinks it has fallen behind the curve.  However, the likelihood that each of the two FOMC meetings after September will produce further rate cuts has clearly increased in the wake of Powell's comments today.