Federal Reserve Chair Jerome Powell on Friday highlighted twin economic risks of a slowing labor market and rising inflation, but opened the door to rate cuts in a widely anticipated speech at the annual Jackson Hole, Wyoming economic forum.
“Risks to inflation are tilted to the upside, and risks to employment are to the downside — a challenging situation,” Powell said in his speech.
The Fed will “proceed carefully” but the shifting balance of risks “may warrant adjusting our policy stance,” Powell said.
Powell’s remarks signal the Federal Reserve is likely to cut rates at its Sept. 17 meeting, which would mark the first reduction since December 2024, several economists said in research notes following the speech. Wall Street cheered Powell’s remarks, with the S&P 500 jumping 1.3% in late morning trading.
“That’s about as clear cut as Powell can get that he has shifted his view since July and is leaning toward a cut in September,” said Heather Long, chief economist at Navy Federal Credit Union, in an email. “He justifies this change in view by acknowledging the downside risks to employment after the shocking July jobs report.”
While Powell highlighted the slowdown in the labor market, he also maintained that inflation risks from Mr. Trump’s tariffs remain. The Fed has been closely watching the nation’s inflation rate, which remains stubbornly above the central bank’s 2% annual target and which has inched higher in recent months.
Under the Fed’s mandate, the central bank is tasked with keeping both inflation and unemployment low.
Powell said the tariffs could result in a “one-time shift in the price level,” resulting in a short-term boost to inflation.
“Of course, ‘one-time’ does not mean ‘all at once’,” he added. “It will continue to take time for tariff increases to work their way through supply chains and distribution networks. Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”
Powell’s comments come as he faces a range of pressures, including President Trump’s repeated calls for his resignation and conflicting economic signals that could make it tougher for the Fed to fulfill its dual mandate of promoting full employment while keeping inflation in check.
When monetary policy makers opted to hold rates steady last month, Powell at that time highlighted the growing economic uncertainty stemming from Mr. Trump’s tariffs, while adding that he believed the economy remained on solid ground.
Yet subsequent economic data has pointed to a slowdown. Job growth — a key measure of the economy’s strength — significantly undershot economists’ forecasts, while a large downward revision in May and June payroll gains suggested the labor market was shakier than previously thought.
Prior to Powell’s speech, the probability of a rate cut at the Fed’s September meeting stood at about 72%, according to CME FedWatch, which bases its calculations on 30-Day Fed Funds futures prices.
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