Federal Reserve Chair Jerome Powell signaled Friday that the U.S. central bank may cut interest rates at its next policy meeting in September, citing growing risks to the labor market and ongoing inflation pressures.
Speaking at the annual Jackson Hole Economic Symposium, Powell said: “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Markets rallied on the dovish tone. The Dow Jones Industrial Average jumped 1.9 percent to a new high for the year. The S&P 500 climbed 1.5 percent, nearing its all-time record, while the Nasdaq advanced 1.9 percent.
The Fed has been on pause since early this year and if it does cut rates it could trigger another round of easing that will affect the policy stance of other central banks.
Powell addressed the complexities of monetary policy amid competing economic signals. As tariffs from President Donald Trump’s trade wars are pressuring prices upward, the job market data suggest a slowdown in hiring, potentially leading to higher unemployment.
“While the labor market appears to be in balance, it’s a curious kind of balance… suggesting that downside risks to employment are rising,” Powell said. “If those risks materialize, they can do so quickly.”
He acknowledged that while tariffs may temporarily boost inflation, they are unlikely to trigger a 1970s-style wage-price spiral due to current labor conditions. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” he said.
The Fed’s next policy meeting is in September, where markets now widely expect a rate cut.
