10:29 AM EDT, 08/23/2024 (MT Newswires) -- With risks to inflation dissipating and risks to employment rising, it is the appropriate time for the Federal Open Market Committee to begin to adjust the level of restrictiveness in monetary policy, Federal Reserve Chair Jerome Powell said Friday in his keynote address at the Fed's Annual Jackson Hole Economic Policy Symposium.

"The time has come for policy to adjust," 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."

Powell noted recent inflation data have given him more confidence that inflation is slowing toward 2%, referring to comments made earlier in the year that more confidence was needed before rates could be adjusted lower.

"Overall, the economy continues to grow at a solid pace," Powell said. "But the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate."

Recent employment data have been concerning and appear to have now become a larger focus for the FOMC while also maintaining price stability - the so-called soft landing.

"We will do everything we can to support a strong labor market as we make further progress toward price stability," Powell said. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.

The current target range of the federal funds rate, at 5.25% to 5.50%, gives the FOMC "ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions."

Immediately prior to Powell's speech, the CME's Fedwatch tool had a 73.5% chance of a 25-basis point rate cut priced in for the Sept. 17-18 meeting, and a 26.5% chance of a 50-basis point rate cut.

Those odds have now shifted to a 67.5% chance of a 25-basis point reduction and a 32.5% chance of a 50-basis point reduction, showing that markets are more convinced of the Fed's plan to quickly reduce the policy rate for the remainder of this year.