On the Dash:
- The Fed chair signaled that interest rate reductions could occur in the coming months, but emphasized that decisions will be data-driven and cautious.
- Powell noted tariffs are raising prices on imported goods, though likely as one-time increases, while core inflation remains above the Fed’s 2% target.
- Sluggish hiring could weaken the economy and lead to increased layoffs, even as unemployment remains low.
Federal Reserve Chairman Jerome Powell indicated Friday that interest rate reductions are possible in the coming months but did not provide a timeline, emphasizing that the central bank will proceed cautiously while assessing the impact of tariffs and current economic trends.
Speaking at the Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell highlighted risks on both sides of the economy. Sluggish hiring could weaken the labor market, while tariffs might raise consumer prices. “The shifting balance of risks may warrant adjusting our policy stance,” Powell said, signaling greater consideration of a rate cut than in previous comments.
The Fed’s benchmark short-term rate currently stands at 4.3%, with three meetings remaining this year: September, October, and December. Powell stressed that future policy decisions will be guided by data, focusing on inflation, unemployment, and overall economic conditions.
He noted that tariffs are already pushing up prices on imported goods, including furniture, toys, and shoes, though he expects these effects to be largely one-time. Consumer prices rose 2.7% year-over-year in July, above the Fed’s 2% target, while core inflation, which excludes food and energy, climbed 3.1%.
On the labor front, Powell acknowledged slower hiring this year but said unemployment remains low. He added that declining immigration reduces the number of jobs needed to maintain low unemployment. Still, he cautioned that prolonged weak hiring could heighten the risk of layoffs and a sharper economic slowdown.
Powell also reaffirmed the Fed’s independence from political pressure. “We will make these decisions based solely on our assessment of the data and its implications for the economic outlook and the balance of risks,” he said, responding indirectly to President Donald Trump, who has called for rate cuts and criticized Fed officials.
The Fed chair announced updates to the central bank’s 2020 policy framework, saying revisions allow more flexibility in responding to post-pandemic economic conditions and changes in inflation and employment across a range of scenarios.
Ultimately, Powell’s speech signals a cautious approach as the Fed balances controlling inflation with supporting a slowing labor market, maintaining credibility and independence amid ongoing political pressures.
