Powell signals Fed may cut rates soon even as inflation risks remain

Federal Reserve Chair Jerome Powell (Courtesy: Reuters photo)

Federal Reserve Chair Jerome Powell on Friday opened the door ever so slightly to lowering a key interest rate in the coming months but gave no hint on the timing of a move and suggested the central bank will proceed cautiously as it continues to evaluate the impact of tariffs and other policies on the economy.

In a high-profile speech that will be closely watched at the White House and on Wall Street, Powell said that there are risks of both rising unemployment and stubbornly higher inflation. That puts the Fed in a tough spot, because it would typically cut its short-term rate to boost hiring, while keeping it high — or raising it — to fight inflation.

“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in prepared remarks. That suggests the Fed will continue to evaluate jobs and inflation data as it decides whether to cut rates, including at its next meeting September 16-17.

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added, a more direct sign that Powell is considering a rate cut than he has made in previous comments.

Still, Powell’s remarks suggest the Fed will still proceed carefully in the coming months and will make its rate decisions based on how inflation and unemployment evolve in the coming months. That may frustrate financial markets, which have hoped for clearer signals of the Fed’s next moves, and President Donald Trump, who has castigated Powell for not lowering rates sooner.

Powell spoke at the Fed’s annual economic symposium in Jackson Hole, Wyoming, a conference with about 100 academics, economists, and central bank officials from around the world.

Powell spoke as markets largely expect a rate cut in September, according to futures pricing, though those odds have slipped this week. Trump has repeatedly called for rate cuts, arguing there is “no inflation” and saying that a cut would lower the government’s interest payments on its $37 trillion in debt.

Trump and his allies have ramped up attacks on the Fed, including this week by calling on a Fed governor, Lisa Cook, to resign, after a Trump official alleged she may have committed mortgage fraud.