Jackson Hole: Jerome Powell Signals Possible Fed Rate Cut in September
Powell pointed to the stability of the unemployment rate and other labor indicators as reasons for the Fed to proceed cautiously.
Quick overview
- Federal Reserve Chair Jerome Powell highlighted the 'unusual situation' in the U.S. labor market and the shifting risks to the economy during his remarks at the Jackson Hole symposium.
- Powell indicated that the Fed may cut interest rates as early as September due to rising downside risks, particularly in employment.
- He noted that while the labor market appears balanced, there are concerns about a potential increase in layoffs and unemployment.
- Powell also addressed the inflationary effects of U.S. tariffs, acknowledging their visible impact while cautioning about the risk of persistent inflation.
Federal Reserve Chair Jerome Powell emphasized the “unusual situation” in the U.S. labor market and the “shifting risks” facing the economy during his opening remarks at the Jackson Hole symposium.
Powell signaled that the Fed could move to cut interest rates as soon as September, citing growing downside risks—particularly in employment. While his tone was measured, markets reacted enthusiastically, treating his comments as confirmation that a rate reduction is likely.
“The labor market may appear balanced, but it is a curious balance resulting from a marked slowdown in both supply and demand for workers,” Powell noted. He described this as an “unusual situation” that suggests “downside risks to employment are rising,” adding that if job losses do emerge, “they could accelerate quickly, leading to a significant increase in layoffs and unemployment.”
At the same time, Powell pointed to the stability of the unemployment rate and other labor indicators as reasons for the Fed to proceed cautiously in adjusting policy. July’s unemployment rate stood at 4.2%, still within the Fed’s target of keeping it below 4.5%.
“Given monetary policy remains in restrictive territory, the baseline outlook and shifting balance of risks could justify an adjustment in our policy stance,” Powell said.
Tariffs and Inflation
In what could be his final Jackson Hole appearance before his term ends in May, Powell also addressed the inflationary impact of U.S. tariffs. He acknowledged that tariff-related price pressures are “clearly visible now,” but suggested a reasonable baseline scenario is that their effect will not last long.
Even so, he warned that “it is also possible that tariff-driven price pressures could fuel a more persistent inflation dynamic—a risk that must be carefully evaluated and managed.”
“When our objectives are under such acute tension, our framework requires us to balance both sides of our dual mandate,” he concluded.
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