Jerome Powell hints at rate cuts amid weak US job market, says 'impact of tariffs clearly visible on prices'

Chair of the US Federal Reserve Jerome Powell - File Photo

Federal Reserve Chair Jerome Powell said Friday that the weak job market may soon force the Fed to cut interest rates. He noted that lower rates could help the labour market, after the Fed kept them unchanged for the past eight months.

In a key Friday speech, Powell warned that risks of higher inflation and a weakening jobs market created a "challenging situation."

"Downside risks to employment are rising," according to Powell's prepared remarks at the Jackson Hole Economic Policy Symposium. He added that "the effects of tariffs on consumer prices are now clearly visible," with high uncertainty in the coming months.

"Downside risks to employment are rising," Powell said, according to a copy of his prepared remarks at the Jackson Hole Economic Policy Symposium.

This is his last such speech at the helm of the Fed, and investors are keeping a keen eye for signs of where interest rates could be headed.

For now, Powell walks a tightrope in balancing the chances that President Donald Trump's sweeping tariffs could fuel persistent inflation alongside those that the jobs market could weaken rapidly. He is also working while under a barrage of criticism from the Republican president.

"While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers," the central bank chief noted.

He added that "the effects of tariffs on consumer prices are now clearly visible" and expected to accumulate over the coming months.

There is high uncertainty, he believes, about the timing and amounts of the tariffs' effects.

"We will not allow a one-time increase in the price level to become an ongoing inflation problem," he said.

Jobs, inflation risks

The Fed, which holds its next policy meeting in mid-September, has kept interest rates steady at a range of between 4.25 percent and 4.50 percent since its last reduction in December.

In keeping rates unchanged, policymakers cited resilience in the labor market as they monitored the effects of Trump's wide-ranging tariffs on the world's biggest economy.

Higher tariffs on imports risk fueling price hikes, according to analysts. The Fed typically keeps interest rates at a higher level to sustainably rein in inflation.

The Fed's preferred inflation gauge rose 2.6 percent in June from a year ago, and a measure stripping out the volatile food and energy segments was higher at 2.8 percent. Both figures are above the Fed's longer-term target of two percent.

But cracks have meanwhile emerged in the jobs market, which could call for lower rates to boost the economy.

Official employment data released this month showed that hiring in May and June was much weaker than originally estimated.

Softening employment has raised concern among officials, with Fed governors Christopher Waller and Michelle Bowman voting against the overall decision in July to hold rates steady for a fifth straight meeting.

Both had preferred to lower interest rates by 25 basis points. It was the first time since 1993 that two Fed governors dissented.

For now, CME Group's FedWatch Tool shows the market sees a 75.6-percent chance that the Fed will lower rates in September.

"With more employment data to come, we don't think Powell can firmly guide toward easing at the next meeting," JPMorgan analysts said in a recent note.

(With AFP inputs)