Powell Opens Door to Cut Rates, Citing Labor Markets

Former Fed Vice Chair Lael Brainard said Fed Chair Jerome Powell opened the door "very clearly" to a possible rate cut in September but the central bank is at a tricky juncture as tariffs affect prices and the labor market cools.

Federal Reserve Chair Jerome Powell carefully opened the door to an interest-rate cut in September, pointing to rising risks for the labor market even as worries over inflation remain.

“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming on Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

Following Powell’s remarks investors boosted bets that the Federal Open Market Committee would cut rates at their Sept. 16-17 meeting.

“He used the speech to solidify expectations for 25 basis points in September,” James Bullard, former President of the St. Louis Fed, said in an interview on Bloomberg Television. “He leaned into the most recent labor market report, which was very soft. And so I think that’s a done deal.”

The signal comes at a time when Fed officials are divided over how and when to adjust policy in the coming months. Some have pointed to the labor market’s resilience. Others warn that nascent signs of weakness in employment could metastasize into a more significant downturn.

Powell said the labor market is in a “curious kind of balance” resulting from a marked slowdown in both the supply of and demand for workers. He cited employment data for July, which showed jobs growth in recent months was substantially weaker than previously reported.

“This unusual situation suggests that downside risks to employment are rising,” he said. “If those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”

But he continued to argue that policymakers must guard against the prospect that President Donald Trump’s tariffs lead to persistent inflation. He said the effects of tariffs on consumer prices are “now clearly visible,” but it’s reasonable to expect the effects will be relatively short lived.

“It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed,” Powell said.

“When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” he added.

Treasury yields tumbled, the S&P 500 extended gains and the dollar fell.

Powell’s speech comes amid unprecedented pressure from President Donald Trump and his allies aimed at getting the central bank to lower borrowing costs, threatening the Fed’s independence in determining monetary policy. As Powell took the podium, the gathered central bankers and economists showed their support by giving him a standing ovation.

Following the speech Trump told reporters the Fed should have lowered rates a year ago. “We call him ‘Too Late’ for a reason,” he said.

Trump took his pressure campaign to a new level on Friday. As Powell was speaking, the president said he would fire Fed Governor Lisa Cook if she doesn’t resign. Trump had already called on Cook to depart over allegations that she provided false information in applying for two mortgages. Cook, who is at the Jackson Hole conference, responded Wednesday that she had no intention of stepping down.

Powell didn’t address the Cook affair in his remarks and didn’t take questions from the audience of central bankers and economists.

The Fed chair also outlined changes officials made to their monetary policy framework, the longer-term strategy that guides the Fed’s decisions.

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