Speaking at the Fed’s annual economic conference Aug. 23 in Jackson Hole, WY, Jerome Powell added fuel to September expectations of a long-awaited cut to the central bank’s benchmark interest rate that has held at historic highs for more than a year.

In a speech, Powell, the Fed’s Chairman, said that the bank is prepared to start cutting interest rates from their current 5.25-5.5% — which they’ve held at since July 2023 and the highest such mark since 2002.

While Powell did not state when cuts would begin or their size, consensus expectations are that the first will be issued upon the conclusion of the Fed’s next committee meeting on Sept. 18-19.

“The time has come for policy to adjust,” Powell keynote speech. “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’s reference to several cuts suggests that a series of them are forthcoming.

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His speech emphasized that U.S. inflation seems to be under control following a more than 2-year stretch of pricing hikes across all industries that peaked in the summer of 2022 before leveling off in late 2023 and throughout 2024.

“After a pause earlier this year, progress toward our 2% objective has resumed,” Powell said. “My confidence has grown that inflation is on a sustainable path back to 2%”

Meanwhile, Powell noted that the U.S. labor market has cooled significantly from its former “overheated state,” with unemployment current 4.3% still low by historical standards but almost a full percentage point above where it was in early 2023.

“It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon,” Powell added. “We do not seek or welcome further cooling in labor market conditions.”

MDM Analysis

Prolonged high interest rates have been consistently cited by distributors as one of the biggest causes for the current industrial demand softness that has lasted much further into 2024 than previously expected — as detailed in this Aug. 22 Premium article.

Distributors have noted delayed capital investments from customers, reduced big ticket order spending and delayed utility projects as markets await rate cuts.

Powell’s comments and what are sure to be heightened expectations of rate cuts from September through 2025 could spur industrial consumer confidence that will lead to accelerated demand, though forecasting how soon demand will increase remains challenging.

For manufacturers, the increased likelihood of a rate cut will likely boost manufacturing technology orders through the remainder of 2024, according to The Association For Manufacturing Technology’s Principal Economist Christopher Chidzik.

“With capacity utilization rates remaining at historically elevated levels in industrial sectors, additional investment in capital equipment will be necessary for manufacturers to address any sudden spikes in demand without a return of supply-side inflationary pressures,” Chidzik said.