Federal Reserve Chair Jerome Powell signaled on Friday that the central bank could cut interest rates as early as September. Speaking at the Kansas City Fed’s annual Jackson Hole conference, Powell cited a shift in risks toward slowing job growth as the rationale for changing course.
Powell said the labor market is now in “a curious kind of balance,” with both hiring and worker demand cooling. He warned that higher layoffs could “materialize quickly” if conditions weaken further. With inflation pressures easing, Powell suggested the Federal Open Market Committee (FOMC) could adjust policy to support the economy.
The Fed has held rates steady in 2025 after cutting by one percentage point last year. While inflation remains above the 2 percent target, it has dropped significantly from pandemic highs. The personal consumption expenditures (PCE) index rose 2.6 percent in June year-over-year, with core inflation at 2.8 percent.
Powell acknowledged that new tariffs have driven up prices in certain categories but described this as a one-time increase, not the start of sustained inflation. “The effects of tariffs on consumer prices are now clearly visible,” Powell said. “We cannot take the stability of inflation expectations for granted.”
Despite insisting that policy decisions are based solely on data, Powell’s shift follows months of public pressure from President Trump, who has criticized high rates and called for aggressive cuts. Trump argued that elevated borrowing costs were damaging housing and manufacturing sectors and recently urged the Fed board to assert full control over monetary policy.
Markets reacted sharply to Powell’s comments. The Dow Jones Industrial Average surged over 800 points, Treasury yields fell, and the dollar weakened. Investors increased bets on a September rate cut, with CME FedWatch showing odds rising from 75 percent to 91 percent.
Fed officials remain cautious. Some regional presidents continue to express concern about inflationary risks from tariffs and remain noncommittal about the September decision. However, Powell’s remarks suggest that slowing economic data could soon outweigh those concerns.
