Federal Reserve Chair Jerome Powell signaled on Friday that the U.S. central bank may be prepared to cut interest rates at its upcoming September 16–17 meeting, though he stopped short of committing to such a move. His remarks underscored a delicate balancing act: acknowledging growing risks to the job market while cautioning that inflation pressures, particularly from new tariffs, remain a potential threat.
Speaking at the Fed’s annual symposium in Jackson Hole, Wyoming, Powell noted that the labour market appears to be stable on the surface but warned that this stability masks underlying fragility. “While the labour 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 materialise, they can do so quickly,” he told an audience of economists and global policymakers. At the same time, he cautioned that tariffs could feed persistent inflation, adding another layer of complexity to the Fed’s policy decisions.
Powell explained that the current stability in unemployment allows the Fed to “proceed carefully,” but acknowledged that restrictive policy settings, combined with changing economic risks, may justify an adjustment in rates. He emphasized that while tariffs are likely to drive prices higher in the short term, the baseline expectation is that those effects will diminish. Still, the Fed chair made clear that upcoming data, particularly on jobs and inflation, will be critical in shaping the final decision in September.
His comments, though measured, effectively open the door to a rate cut but provide little clarity on how soon or how aggressively the Fed might move thereafter. That uncertainty could invite further political pressure from President Donald Trump, who has long argued that inflation risks are overstated and that interest rates should be slashed immediately. Trump has escalated his criticism in recent weeks, not only demanding Powell’s resignation but also extending those calls to Fed Governor Lisa Cook.
Powell’s address also carried added weight as it marked his final scheduled remarks as chair before his term ended in May. The Trump administration is actively seeking a replacement and has sought to reshape the Fed’s leadership by urging Powell and other members of the Board of Governors to step aside. Despite the mounting pressure, Powell has reiterated that he intends to serve out his full second term, a position protected by law since Fed chairs cannot be removed over disagreements on monetary policy.
The Fed has kept interest rates steady in the 4.25% to 4.50% range since December, a restrictive level designed to manage inflation that remains above the 2% target. Officials are also evaluating how recently imposed tariffs—expected to raise consumer prices—will affect the economic outlook. While some policymakers, such as Governor Christopher Waller, argue that the inflationary effects will be modest and short-lived, they believe immediate rate cuts are necessary to shield a softening labour market.
Economic data released since the Fed’s last meeting have offered mixed signals, intensifying the debate within the central bank. All eyes are now on the August employment report, which will heavily influence the September decision. That meeting will also feature updated quarterly projections from Fed officials, who as of June anticipated two rate cuts before year-end.
Ultimately, Powell’s carefully balanced message underscores the Fed’s twin challenge: responding to slowing labour market momentum without letting inflation slip out of control. The outcome of September’s meeting will hinge on data in the weeks ahead, making the upcoming jobs and inflation reports pivotal in shaping the central bank’s next move.
