US Federal Reserve Chairman Jerome Powell indicated on Friday that a potential rate reduction could occur during September's central bank meeting. However, he maintained a balanced stance, refraining from making definitive commitments about interest rate cuts. His comments acknowledged mounting concerns about employment conditions whilst emphasising that inflation risks continue to persist.
Delivering a speech at the Jackson Hole Economic Policy Symposium, Powell said, “Risks to inflation are tilted to the upside and risks to employment to the downside, a challenging situation when our goals, our intention like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.”
“Nonetheless, with policy and restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. Policy is not on a preset course. FOMC 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, we will never deviate from that approach,” he said.
“While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising, and if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” Powell said.
“At the same time, GDP growth has slowed, notably in the first half of this year, to a pace of 1.2%, roughly half the 2.5% pace in 2024. The decline in growth has largely reflected a slowdown in consumer spending, as with the labor market. Some of the slowing in GDP likely reflects slower growth of supply or potential output.
"We continue to believe that monetary policy must be forward looking and consider the lags its effects on the economy. For this reason, our policy actions depend on the economic outlook and the balance of risks to that outlook," he said.
Powell warns of uncertainties due to Trump's tariffs
“This year, the economy has faced new challenges, significantly higher tariffs across our trading partners are remaking the global trading system. Tighter immigration policy has led to an abrupt slowdown in labor force growth over the longer run, changes in tax, spending and regulatory policies may also have important implications for economic growth and productivity. There is significant uncertainty about where all of these policies will eventually settle and what their lasting effects on the economy will be,” Powell cautioned.
“Changes in trade and immigration policies are affecting both demand and supply in this environment. Distinguishing cyclical developments from trend or structural developments is difficult. This distinction is critical, because monetary policy can work to stabilize cyclical fluctuations, but can do little to alter structural changes,” he said.
“When I appeared at this podium one year ago. The economy was at an inflection point. Our policy rate had stood at five and a quarter to five and a half percent for more than a year. That restrictive policy stance was appropriate to help bring down inflation and to foster a sustainable balance between aggregate demand and supply, inflation had moved much closer to our objective, and the labor market had cooled from its formerly overheated state upside. Risks to inflation had diminished, but the unemployment rate had increased by almost a full percentage point, a development that historically has not occurred outside of recessions,” Powell said at the start of his speech.
“Over the subsequent three Federal Open Market Committee meetings, we recalibrated our policy stance, setting the stage for the labor market to remain in balance near maximum employment over the past year,” he said.
This is Powell’s last Jackson Hole speech as the US Federal Reserve chairperson. His tenure concludes in May 2026.
The Federal Reserve, scheduled to convene its next policy meeting in mid-September, has maintained interest rates between 4.25 percent and 4.50 percent since their last decrease in December.
The decision to keep rates steady was influenced by the strong labour market performance, as officials assessed the impact of Trump's comprehensive tariffs on America's economy.
According to analysts, increased import tariffs could lead to price increases. The Federal Reserve generally maintains elevated interest rates as a strategy to control inflation effectively.
The Federal Reserve chairperson's keynote address at last year's Jackson Hole Economic Policy Symposium suggested potential interest rate reductions, but experts caution the situation is less clear at present.
"The Fed is in a tough position as inflation remains above target and downside risks to the labor market are intensifying," said Ryan Sweet, chief US economist at Oxford Economics according to an AFP report.
Trump a strong critic of Powell
US President
Donald Trump has openly expressed his criticism of Powell, consistently stating that the Federal Reserve chairman has been "too late" in reducing interest rates whilst labelling him a "numbskull" and "moron."
Trump criticised Powell regarding the Federal Reserve's headquarters refurbishment in Washington, suggesting that excessive expenses could warrant the central banker's dismissal.
Trump later abandoned this stance but recently demanded Fed governor Lisa Cook's resignation, citing allegations of mortgage fraud.
In response, Cook issued a statement declaring that she had "no intention of being bullied to step down" whilst noting her commitment to addressing questions about her financial records.
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