Powell's "Curious Balance" Remarks Signal Fed Torn Between Tariffs and Labor Market Risks

Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole Symposium have drawn significant attention from economists, particularly Torsten Slok, chief economist at Apollo Global Management. Powell described the labor market as being in a “curious kind of balance,” a phrase Slok found unusual and telling. According to Slok, the language reflects the Fed’s growing awareness of structural distortions stemming from Trump’s policies, including tariffs and immigration enforcement [1]. He warned that these forces could keep inflation stubbornly high, making any rate cuts potentially ineffective or even counterproductive.

Powell’s speech emphasized the fragility of the current labor market. He noted that while the market remains in balance, this balance is the result of a marked slowdown in both labor supply and demand. He added that downside risks to employment are rising and could materialize quickly through increased layoffs and higher unemployment [1]. Slok found the tone and phrasing “puzzling,” as it diverged from Powell’s typically measured and steady communication style.

The Fed now faces a delicate balancing act. On one hand, there are signs of a cooling labor market and rising recession risk. On the other, Powell highlighted potential inflationary pressures from tariffs and a weakening dollar. This dual threat has left the central bank in a tight spot, with Powell seemingly leaning toward concerns about the labor market slowdown while still holding the door open for the outcome of the upcoming employment report [1].

Slok argued that the Fed’s caution is justified, given the potential for tariffs to create a more enduring inflationary dynamic. He noted that tariffs typically result in higher inflation and lower GDP growth. Similarly, large-scale deportations, as part of the administration’s immigration crackdown, are reducing labor supply and potentially increasing wage inflation, particularly in sectors like agriculture, construction, and hospitality [1].

The concern extends to a historical parallel. In the 1970s, the Fed cut interest rates too early after an initial inflation spike, only to be forced to reverse course as inflation surged again. This “stop-go” cycle led to repeated recessions and damaged the Fed’s credibility. Slok warned that a similar scenario could unfold if current rate cuts fail to curb inflation, forcing the Fed to raise rates again and triggering economic instability [1].

Slok also highlighted the political pressures shaping Powell’s decisions. President Donald Trump’s advocacy for aggressive rate cuts and expansive trade policies has created a challenging environment for the Fed. Powell must now navigate between political demands for looser monetary policy and the Fed’s dual mandate of maintaining price stability and maximum employment [1]. While Powell’s speechwriters are not directly influenced by Trump, the broader political context is undeniably influencing the economic landscape.

Ultimately, both tariffs and deportations are exerting similar macroeconomic effects: higher inflation and slower GDP growth. Slok suggested that Powell’s “curious” balance might, in fact, be a trap — one that could have long-term consequences for the Fed’s credibility and the broader economy [1].

Source: [1] Powell's 'unusual' Jackson Hole remarks reveal he's boxed ... (https://fortune.com/2025/08/22/powell-jackson-hole-unusual-inflation-tariffs-deportations-trump/)