United States: Fed Chairman Leaves Door Open to Rate Cuts

A "rapid" deterioration in the American labor market cannot be ruled out and could "justify" an easing of monetary policy, and therefore of interest rates, warned the head of the institution at the meetings in Jackson Hole, Wyoming (west).

He adds that the Fed is in a "delicate situation" because the new customs duties implemented by the American executive are at the same time beginning to have an impact on the prices paid by consumers, with the risk of reviving inflation.

"The impact of tariffs on consumer prices is now clearly visible," he stressed.

In theory, the risk of a surge in inflation encourages central bankers to at least leave their key interest rates unchanged. But if they believe that economic activity must be supported to avoid layoffs, they tend to lower interest rates, which guide the cost of credit for businesses and individuals.

"Risks to the labor market are increasing. And if these risks materialize, they could quickly translate into increased layoffs and unemployment," Powell observed.

His speech was immediately interpreted by investors as a way of preparing the ground for rate cuts at the next meeting of the US central bank in September.

This caused US debt rates to plummet, with the two-year yield - the most sensitive to currency movements - dropping from 3.78% to 3.71% in a matter of seconds. The dollar also fell, dropping by around 0.54%, as lower rates tend to weigh down the value of a currency.

On the other hand, Wall Street applauded the Fed chief's remarks, with the main US stock indices rising sharply around 2:10 PM GMT.