CashNews.co
Andrew Bailey raised hopes of more rapid interest rate cuts at a speech at the Jackson Hole conference on Friday, bringing optimism for millions of UK mortgage holders.
The governor of the Bank of England (BoE) said inflation appeared to be fading more quickly than feared, with the “persistent” factors keeping price rises high “smaller than we expected”.
However, he did issue a word of warning, adding that Threadneedle Street still needs to “be cautious because the job is not completed”.
“We are not yet back to target on a sustained basis,” he cautioned, just a month after cutting rates for the first time in four years, from 5.25% to 5%.
“Policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further. The course will therefore be a steady one.”
Read more: Wall Street and European stocks advance as Fed chair Jerome Powell hints at multiple rate cuts
It came as Jerome Powell gave the strongest indication yet that the Federal Reserve will cut US interest rates next month. The Fed chair announced that “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,” Powell said at the economic conference in Wyoming.
“Four and a half years after COVID-19’s arrival, the worst of the pandemic-related economic distortions are fading. Inflation has declined significantly. The labour market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic.”
Read more: How likely are multiple Bank of England interest rate cuts this year?
The remarks will come as relief to financial markets, which went into freefall in early August when a Fed decision to hold rates was followed by a series of weak economic data.
Sterling rose to its highest in more than two years and the dollar dropped this afternoon on the back of the news. The pound was up 0.83% at $1.3197, touching its highest since late March 2022. It surpassed a previous 13-month high of $1.3144.
CME FedWatch suggests traders have now shifted their bets slightly towards a 0.5 percentage point cut on 18 September, but the consensus is still for a 0.25 percentage point cut.
The probability of the latter is at 67.5%, down from 71.5% earlier, according to probabilities implied by derivative transactions.
Download the Yahoo Finance app, available for Apple and Android.