Federal Reserve Chair Jerome Powell on Friday offered a guarded signal that interest rate cuts could be considered in the coming months, but emphasised the significant uncertainty facing monetary policymakers.
Speaking at the Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell said that a shifting balance of risks is complicating the central bank’s dual mandate of maintaining stable prices and ensuring full employment.
He pointed to sweeping changes in tax, trade, and immigration policies, which he said were altering the economic landscape.
According to him, while the labour market remains strong and the broader economy has shown resilience, downside risks are increasing.
Powell also warned that tariffs could push inflation higher, raising the possibility of stagflation—an outcome the Fed aims to avoid.
Policy stance and market expectations
Powell noted that the Fed’s benchmark interest rate currently stands a full percentage point below its level during his keynote address a year earlier, while unemployment remains low.
This combination, he said, provides scope for the central bank to proceed carefully in adjusting its policy stance.
He added that with policy already in restrictive territory, the baseline outlook and shifting risks could justify a reassessment of the Fed’s approach.
That remark was interpreted by markets as the closest indication that policymakers might lower rates at the Federal Open Market Committee’s next meeting on September 16–17.
Financial markets responded swiftly. The Dow Jones Industrial Average climbed by more than 600 points after the release of Powell’s prepared remarks, while the yield on the two-year Treasury note, which is sensitive to monetary policy expectations, fell by 0.08 percentage points to around 3.71%.
Tariffs and inflation risks
In his address, Powell highlighted the challenges posed by ongoing tariff measures.
While consumer prices have been moving gradually higher, wholesale costs have risen more quickly.
Powell said that the ultimate effect of tariffs on inflation remains uncertain, with the potential for several outcomes.
He outlined a base case in which tariff impacts could prove short-lived, amounting to a one-time increase in the price level, which by itself would not require keeping rates elevated.
However, he acknowledged that the situation could evolve differently.
The Fed has kept its benchmark borrowing rate in a range between 4.25% and 4.5% since December.
Policymakers, Powell said, remain cautious given the uncertainty over how tariffs may affect inflation, but also believe that the current stance allows time for careful evaluation before making further moves.
Pressure from the White House
Powell did not directly address the calls from President Donald Trump for sharp rate cuts, though he stressed the independence of the central bank.
He said decisions on monetary policy will continue to rest solely on the assessment of data, the economic outlook, and the balance of risks, adding that the Fed would not deviate from that approach.
The backdrop to his remarks includes continued trade negotiations between the US administration and global partners.
With outcomes still unclear, Powell said that uncertainty would remain a key factor guiding the Fed’s next steps.
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