Powell's "Curious Balance" Signals September Rate Cut Risk

Federal Reserve Chair Jerome Powell has signaled that a rate cut could occur in September amid growing concerns over the labor market, even as inflation remains above the central bank’s 2% target. In remarks delivered at the Federal Reserve’s annual Jackson Hole symposium on August 22, Powell described the current labor market as being in a “curious balance” marked by a significant slowdown in both labor supply and demand. He noted that this unusual situation has increased the risk of a sudden downturn in employment, characterized by higher layoffs and rising unemployment. These comments suggest a shift in the Fed’s stance, reflecting the tension between its dual mandate of maintaining price stability and promoting maximum employment.

The remarks followed a disappointing jobs report for July, in which employers added just 73,000 jobs, and previous months’ figures were revised downward by 258,000 combined. Despite the historically low unemployment rate of 4.2%, Powell emphasized that the Fed must carefully evaluate the risks posed by the recent economic data. He also highlighted the complicating factor of President Donald Trump’s tariffs, which are pushing inflation higher and complicating the Fed’s decision-making process. While some analysts believe the inflationary impact of these tariffs will be short-lived, others warn of the potential for a more entrenched upward pressure on prices that could disrupt wage and price expectations.

In response to Powell’s comments, financial markets have adjusted their expectations, with traders now assigning an 85% probability to a 25-basis-point rate cut in September. This marks a significant shift from earlier forecasts that suggested the Fed might wait until December. The possibility of a rate cut has already triggered movements in key financial indicators, with U.S. Treasury yields falling and the U.S. dollar weakening. These developments have also influenced the cryptocurrency market, where investors have shown increased sensitivity to macroeconomic policy shifts. For instance, Bitcoin, which had reached a record high earlier in the week, fell to $115,000 amid heightened macroeconomic concerns and a wave of liquidations triggered by the uncertainty surrounding the Fed’s next move.

Powell acknowledged that the Fed’s policy remains in a restrictive range, and he stressed that any decision to adjust the stance of monetary policy would depend on upcoming economic data. He highlighted the importance of reviewing the next employment and inflation reports, which are due before the Fed’s meeting in mid-September. The Fed’s hesitation to act decisively is further complicated by internal debates among policymakers. While some, like St. Louis Fed President Jeffrey Schmid and Cleveland Fed President Beth Hammack, remain cautious about cutting rates with inflation still elevated, others, including Governor Christopher Waller, argue that the impact of tariffs will be short-lived and that rate cuts are necessary to protect the labor market.

The political environment has also played a role in shaping the Fed’s decisions. Trump has continued to pressure the Fed to cut rates and has publicly criticized Powell and other board members. He has even suggested firing Governor Lisa Cook if she does not resign voluntarily. Despite these pressures, Powell has maintained that the Fed operates independently and will base its decisions on economic data rather than political influence. This tension underscores the broader challenges facing the central bank as it seeks to balance economic stability with political pressures.

As the September meeting approaches, investors and analysts will be closely watching how the Fed navigates these complex dynamics. The outcome will not only influence the U.S. economy but also have broader implications for global markets, particularly the cryptocurrency sector, which has demonstrated heightened volatility in response to macroeconomic and policy developments.

Source:

[1] Fed's chair signals likely September rate cut as job growth https://www.usatoday.com/story/money/2025/08/22/fed-powell-september-rate-cut/85768429007/

[2] Powell says Fed may need to cut rates, will proceed carefully https://www.reuters.com/markets/wealth/powell-says-fed-may-need-cut-rates-will-proceed-carefully-2025-08-22/

[3] The crypto market tumbled to begin the week as https://www.facebook.com/cnbc/posts/the-crypto-market-tumbled-to-begin-the-week-as-heightened-macro-concerns-trigger/1158****82770500/