US Federal Reserve Chair Jerome Powell on Friday offered an explicit endorsement of interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation was within reach of the US central bank's 2 percent target.

"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 percent," after rising to about 7 percent during the Covid-19 pandemic, while unemployment is increasing.

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 layoffs, 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 percent 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 labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labour market."

Traders on Friday continued to bet on a quarter-percentage-point rate cut at the Fed's September 17-18 meeting, but after Powell's remarks priced in about a one-in-three chance of a bigger half-percentage-point cut, up from a little more than a one-in-four probability earlier.

"Powell was clear about the first rate cut, but not so much about the next ones, so I don't think he'll be exploding out of the blocks with a 50-basis-point cut," said Sam Stovall, chief investment strategist at CFRA Research. "I think slow and steady is how the Fed wants to pace this early part of the easing." (Reuters)