US Fed signals rate cut; global borrowing costs expected to drop from Sept

Federal Reserve Chair Jerome Powell made a decisive statement on Friday, signalling the central bank’s readiness to cut interest rates in a highly anticipated speech at Jackson Hole, Wyoming.This move is expected to reduce borrowing costs for consumers and businesses not only in the United States but also globally.Powell stated that "the time has come” for the US central bank to lower rates, citing growing risks to the job market that leave no room for further economic deterioration. With inflation nearing the Fed’s 2% target, Powell’s remarks strongly endorse an imminent policy easing."The upside risks to inflation have diminished. And the downside risks to employment have increased,” the Fed chief noted.Addressing central bankers at an annual symposium, Powell expressed confidence that inflation was within reach of the Fed’s 2% target and said policy makers want to avoid further cracks in the job market.Powell did not disclose specifics about when a rate cut could arrive, or its size, although economists have pencilled in a reduction at the Fed’s September 18 meeting.The federal funds rate now stands in a range of 5.25-5.5%, its highest level in some 23 years.In conveying that the Fed is likely to start cutting its benchmark rate, Powell cited some weakening in the labour market, as well as progress in battling high inflation."A slowdown in hiring and an uptick in the unemployment rate last month heightened concerns the Fed could mistake in the other direction, keeping rates too high for too long, throttling growth and plunging the economy into recession,” CBS News said in a report."We do not seek or welcome further cooling in labour market conditions,” 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,” he said.Previously, Powell had raised concerns that rate cuts could spur inflation to flare up, erasing the gains the Fed had made in taming the hottest price increases in four decades.One question left unanswered by Powell’s speech was the potential size of a September rate cut."At the moment, about three in four economists polled by financial services firm FactSet are forecasting a reduction of 0.25 percentage points."But if the August jobs data comes in weaker than expected, that could increase the chances of a bigger cut of 0.5 percentage points, experts noted,” CBS News noted.Already, mortgage rates have dropped to their lowest levels in 15 months, ahead of expectations that the Federal Reserve will cut its benchmark interest rate next month for the first time in four years.But a rate cut of 0.25-0.5 percentage points will likely only make small changes in borrowing costs for consumers, noted Ted Rossman, senior industry analyst at Bankrate.Even so, mortgage rates could continue to decline, especially if inflation continues to fall and the job market shows some weakness, experts have noted.Mena’s largest bank QNB said recently: "We expect two 25 bps cuts this year and subsequent 25 bps cuts every other policy meeting until early 2026, when rates should rest at 3.75-4%.”