Powell Opens Door to Rate Cut Amid Jobs Risks and Trump Pressure

Federal Reserve Chair Jerome Powell, in a keynote speech at the 2025 Jackson Hole Economic Policy Symposium, indicated that the Federal Open Market Committee (FOMC) may consider cutting interest rates at its September meeting, but emphasized that the decision would depend on evolving economic data and the balance of risks. “The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell stated, signaling a cautious but open approach to rate reductions. This statement came amid growing concerns over a weakening labor market and rising downside risks to employment, which Powell described as “rising quickly” in the event of sharper layoffs or increased unemployment.

The Fed chair’s remarks reflected a broader consensus among some policymakers, including Governor Christopher Waller and San Francisco Fed President Mary Daly, who have argued for rate cuts to address the “curious balance” of a slowing labor market. Powell noted that the labor market remains in a precarious state despite a still-low unemployment rate of 4.2%. “This unusual situation suggests that downside risks to employment are rising,” he said, pointing to a sharp slowdown in hiring and a contraction in the labor force, partly attributed to a “sharp falloff in immigration.”

Inflation remains a central concern for the Fed. While Powell acknowledged that the Trump administration’s sweeping tariffs have pushed up prices in certain categories, he expressed confidence that the inflationary effects would be “short lived” and primarily a one-time shift in the price level. However, he also warned that if the tariffs led to more persistent inflation, the Fed would need to reassess its policy stance. “That outcome does not seem likely,” he said, citing reduced wage-setting power among workers due to slower hiring.

The central bank also announced updates to its policy framework, emphasizing a renewed commitment to price stability. These changes, part of a five-year review, underscore the Fed’s broader objective of balancing high inflation and high unemployment. “Price stability is essential for a sound and stable economy,” Powell stated, reflecting on the painful lessons of the 2021 inflation surge, which had been initially dismissed as transitory.

Markets responded positively to Powell’s speech. U.S. stocks surged, with the Dow Jones Industrial Average rising over 600 points, while Treasury yields fell as investors repositioned for lower rates. Traders now priced in an 85% probability of a 25-basis-point rate cut in September, up from 75% earlier in the day. However, not all Fed officials were aligned on the need for immediate action. Boston Fed President Susan Collins, who will vote at the September meeting, expressed caution, stating that inflation could remain elevated into early 2026 due to tariff-related pressures.

The political context of the speech added further complexity. President Donald Trump has been vocal in his criticism of the Fed and has pressured Powell to cut rates, even threatening to remove Fed Governor Lisa Cook from her position over allegations of mortgage fraud. Powell, however, reiterated the Fed’s independence and commitment to data-driven decision-making. “FOMC members will make these decisions based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” he said, underscoring the central bank’s resistance to political pressure.

Source:

[1] 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/)

[2] Fed's Powell opens door to rate cut, citing job market risks (https://www.politico.com/news/2025/08/22/fed-powell-interest-rates-inflation-jobs-economy-trump-00519419)

[3] Powell suggests rate cuts are coming — but not because... (https://www.cnn.com/business/live-news/fed-powell-jackson-hole)

[4] Powell indicates conditions "may warrant" interest rate cuts... (https://www.cnbc.com/2025/08/22/powell-indicates-conditions-may-warrant-interest-rate-cuts-as-fed-proceeds-carefully.html)