The Jackson Hole conference concluded, with central banks in Europe and the United States beginning to feel optimistic, lowering interest rates to ensure a "soft landing."

"The time to adjust policies has come," Federal Reserve Chairman Powell made a decisive statement at Jackson Hole, marking a historic shift to a loose monetary policy by central banks in Europe and the United States.

Over the past weekend, global central banks gathered at the annual Jackson Hole Symposium, where central bank officials seemed to see hope for achieving a "soft landing" for the global economy. After experiencing the most severe inflation shock in forty years, many had previously thought this was almost impossible.

Bank of England Governor Bailey and Federal Reserve Chairman Powell responded to concerns in the market that sacrificing economic growth would be necessary to achieve inflation targets. Both of them indicated that as they begin the rate-cutting cycle, they are still on track to avoid an economic recession.

Economists in the audience also expressed optimism, with Heather Boushey, a member of the White House Council of Economic Advisers, stating in a media interview:

"No one knows exactly what will happen in the coming months, but data shows that the unemployment rate will continue to remain low and the economy will remain strong."

Concerns of Economic Recession Exaggerated

Two years ago, the economic outlook was extremely pessimistic. To curb the most severe inflation in developed economies since the 1980s, aggressively raising interest rates was expected to trigger a painful recession, leading to millions of job losses.

However, the situation has changed in the past twelve months, with inflation sharply declining in the second half of 2023, moving away from the highs of 2022, and now seemingly moving towards the central banks' 2% target.

The labor market has remained generally stable, with economists interviewed at the Jackson Hole meeting believing that previous concerns about an economic recession were exaggerated.

Analysts at the Jackson Hole meeting stated that they are closely monitoring the labor market, but the current weakness suggests an economic slowdown rather than a recession.

Former Federal Reserve Vice Chairman Alan Blinder stated:

"You have to slow down the plane to achieve a soft landing, the likelihood of an economic recession is not much higher than 15%."

Boston Federal Reserve President Collins believes that there is a "clear path" to achieving the 2% inflation target without unnecessary economic slowdown, but she acknowledges that the risk of recession in the United States may still become a reality.

Cautious Shift to a "Rate-Cutting Cycle"

The European Central Bank, the Bank of England, and the Bank of Canada have all cut interest rates this summer, with further rate cuts expected in the coming months.

As hinted by Powell on Friday, the Federal Reserve will join them in September. This meeting takes place six weeks before the U.S. presidential election, making the election results crucial for the world's largest economy.

IMF Chief Economist Gourinchas agrees with the central banks' shift, calling it the "right" move.

"In principle, this loose policy may benefit global economic growth, it will help stabilize economic activity, the rate cut in the U.S. will lead to a depreciation of the dollar, with emerging market economies particularly benefiting from this."

However, central banks around the world are still concerned that cutting rates too early may reignite inflation, so even as they shift to rate cuts, they are generally adopting a cautious approach. Bailey reiterated that he will adopt a cautious approach to rate cuts, further confirming the expectation that the Bank of England will maintain interest rates in September and then lower borrowing costs again in November.

The Chief Economist of the European Central Bank warned on Saturday that its inflation target is "still uncertain."

US officials also support gradual rate cuts, but they also leave room for more aggressive measures if necessary