"The upside risks to inflation have diminished. And the downside risks to employment have increased," Powell said in a highly anticipated speech to the Kansas City Fed's annual economic conference in Jackson Hole, Wyoming.
"The time has come for policy to adjust. 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."
Referencing the two goals that the Fed is tasked by Congress to achieve, Powell said his "confidence has grown that inflation is on a sustainable path back to 2 per cent," after rising to about 7 per cent during the COVID-19 pandemic, while unemployment is increasing.
"A good deal of progress" has been made against inflation, Federal Reserve chair Jerome Powell says. (AP PHOTO)
While Powell said the jump of nearly a percentage point in the unemployment rate over the past year was due largely to rising labour supply and slowed hiring, not increased lay-offs, he also was emphatic that the Fed wanted to prevent any further erosion - his prior talk of labour market "pain" as necessary to control inflation now a thing of the past.
The current unemployment rate of 4.3 per cent is roughly at the level Fed officials feel is consistent with stable inflation over the longer run.
"We do not seek or welcome further cooling in labour market conditions," Powell said.
"We will do everything we can to support a strong labour market as we make further progress toward price stability. With an appropriate dialling back of policy restraint, there is good reason to think that the economy will get back to 2 per cent inflation while maintaining a strong labour market."
Powell's comments are as close as he is likely to come to declaring victory over the outbreak of inflation that rattled the economy at the start of the pandemic.
The fast rise in prices led the Fed to increase its benchmark policy rate from the near-zero level to the current 5.25 per cent-5.50 per cent range, the highest level in a quarter of a century.
It has been held there for more than a year even as the economy defied frequent predictions of recession, inflation fell and economic growth continued - the makings of a textbook "soft landing," with the endgame of rate cuts now set to begin.
"While the task is not complete, we have made a good deal of progress" toward restoring price stability, Powell said.
The Fed defines price stability as 2 per cent inflation as measured by the personal consumption expenditures price index.
The index is currently running at an annual rate of 2.5 per cent.
Powell is speaking at the Jackson Lake Lodge in Wyoming's Grand Teton National Park to a gathering of central bankers and economists that has become a global platform for officials to shape views of monetary policy and the economy.
His comments largely cement a decision the Fed has telegraphed through earlier Powell comments and a readout of the US central bank's July meeting which said a "vast majority" of policy makers agreed rate cuts likely would begin next month.
But his emphatic language has now put beyond doubt that the Fed is opening a new chapter in monetary policy.
He did not, however, go much beyond that to describe how the Fed would be weighing its decisions from here as it navigates a long-awaited policy easing.
Fed officials will provide updated economic projections at their September 17-18 meeting that will provide more detail on how they expect the benchmark policy rate to evolve from here.
