The Fed’s Green Light

This Friday, Jerome Powell will take the stage at Jackson Hole, for the Fed’s annual Economic Symposium. This comes at a very important time, when many have differing opinions on what the Fed should do in its upcoming policy meeting. I believe it is the perfect moment for Powell to signal that the Fed is ready to begin its rate cutting cycle come September. A move now would relieve mounting pressure on the economy while keeping inflation risks in check

The first and clearest sign that easing is needed comes from the labor market, which is beginning to show real cracks. The labor market, which is the strongest pillar of the economy, is weakening. Job growth has slowed, job openings are shrinking, and unemployment claims are rising. If the Fed continues to wait, what was once a softening trend could turn into a sharper downturn, which could eventually lead into a recession.

Another reason the Fed should cut is the housing market. High mortgage rates have frozen the housing sector over the last 2 years. Affordability is at its worst level in decades, existing home sales are at recession lows, and new construction has slowed sharply. Housing is a major growth driver, and prolonged weakness risks dragging down broader consumer activity.

Some argue that even if the Fed cuts, mortgage rates won’t fall because the long end of the curve will simply steepen while only the short end moves lower. I disagree. The curve can continue to steepen, but with policy easing, the long end should also begin to drift down marginally. That shift would be enough to bring mortgage rates lower and provide much-needed relief to a housing market frozen by high borrowing costs.

The biggest risk cited against cutting rates is inflation. Yet so far, tariffs have not produced meaningful upward pressure on prices, and I do not believe they will in a material way. If we do see any impact, it will be a one-time adjustment to the price level, not a sustained rise in inflation.

The path for a rate cut is clear. The labor market is weakening, housing is frozen, and tariff-related inflation fears are overstated. A modest cut in September would support growth without jeopardizing progress on prices. Jackson Hole gives Powell the perfect stage to prepare markets. The Fed has a green light to act, and the cost of waiting is far greater than the cost of moving now.