The job market is on such shaky ground that the Federal Reserve may soon need to cut interest rates to support the economy, Fed Chair Jerome Powell said Friday at a key central banking forum.
In one of his most consequential speeches, Powell suggested the labor market could benefit from lower rates, which the Fed has kept unchanged for eight straight months.
“Downside risks to employment are rising,” Powell said in prepared remarks for his keynote speech at the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming. He said the possibility of Trump’s tariffs having only a short-lived effect on inflation is “reasonable.”
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added.
The Jackson Hole conference is typically a major event in the world of central banking in which the Fed chair sets the tone for the rest of the year, but it has a radically different backdrop this year.
Powell’s Jackson Hole remarks, his last such as Fed chair, come at an inflection point in the central bank’s 111-year history. The Fed — and Powell in particular — has been subject to an unprecedented onslaught on attacks from the White House since Trump began his second term in January. But now, the Trump administration is expanding its assault on the central bank.
The Justice Department has signaled it plans to investigate Fed Governor Lisa Cook after Federal Housing Finance Agency Director Bill Pulte accused her committing mortgage fraud.
Trump continues to demand massive rate cuts as his administration actively searches for who will replace Powell once his term as chair ends in May 2026. At the same time, he is also slowly reshaping the Fed.
Fed Vice Chair for Supervision Michelle Bowman, whom Trump elevated earlier this year to her current post, is actively reviewing banking regulation and is widely expected to ease rules on the largest banks. Some of the contenders for Fed chair have vowed to downsize the central bank’s workforce if they’re chosen.
Trump has also nominated Stephen Miran, chair of the Council of Economic Advisers, to fill a vacant seat on the Fed’s Board of Governors after former Fed governor Adriana Kugler resigned earlier this month.
And if Cook is pushed out and Miran is confirmed, that would tilt the make-up of the central bank’s board in favor of Trump, with only two Fed governors appointed by a Democratic president. Powell has refused to reveal if he plans to stay on the Fed’s board after his term as chair ends in May 2026. He has a separate concurrent term as Fed governor that runs through 2028.
“The Fed board is comprised of seven governors, one of them the chairman. With a four-person majority, the Board can fire regional Fed bank presidents who play a key role in interest rate decisions,” Jon Hilsenrath, senior adviser at brokerage firm StoneX, wrote in a statement on LinkedIn Thursday.
“Each one of these board seats matters a great deal to a president who wants to reshape how the central bank works and what it decides. Getting rid of Cook would be a way for the President to build that four-person majority,” he added.
Fed officials make their decisions on interest rates based solely on what economic figures show in striving for their dual goals of maximum employment and stable prices — not based on what politicians demand of them. Powell reiterated that point in his speech.
“(Fed) members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” Powell said. “We will never deviate from that approach.”
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