Monetary policy

Federal Reserve Gov. Christopher Waller, a Trump appointee, said that while recent inflation readings are concerning, monetary policy would remain restrictive even if the central bank cuts interest rates by another quarter-point this month.

The Federal Reserve chair said there are no economic indicators calling for rapid rate cuts. He also addressed Fed independence, the impact of Trump's economic agenda and more.

The Federal Reserve's top official was emphatic that he and other leaders on the Board of Governors cannot be dismissed or demoted at will by the president.

Federal Reserve chair Jerome Powell flagged a recent upward revision to income and savings data as a sign of economic strength. He said the information could factor into the central bank's monetary policy discourse during the Fed's next interest rate meeting in November.

The move signals the end of the Federal Reserve's battle against runaway inflation in the wake of the COVID-19 pandemic. Fed officials expressed divergent views on further action this year.

Economists are also forecasting faster and deeper cuts to borrowing costs over the next year, and see the central bank reducing the policy rate from the current 4.5% to 3% by next July.

In his speech at the Federal Reserve's Jackson Hole Economic Symposium, the Fed chair said employment losses are now a bigger risk than elevated inflation.

"Fed watchers will be parsing Powell's comments for signs that a 50bp rate cut is on the table for September," noted Lauren Saidel-Baker, an economist with ITR Economics. "However, the notoriously tight-lipped chair is unlikely to confirm this, making a 25bp cut the most likely outcome."

Policymakers also made several adjustments to the language of a statement released after their two-day meeting in Washington, signaling they are closer to reducing borrowing costs.

The central bank also noted that the banking system is sound but faces several challenges. The report precedes Federal Reserve Chair Jerome Powell's upcoming appearances on Capitol Hill.