Powell hints at rate cuts amid weak jobs data, flags ‘clear’ tariff impact on prices

Federal Reserve Chair Jerome Powell on Friday signaled that a weakening job market may soon compel the central bank to cut interest rates, after holding them steady for eight consecutive months.

In a closely watched speech, Powell acknowledged that lower rates could support the labour market, even as inflation risks persist. He described the current economic backdrop as a “challenging situation,” with the Fed balancing concerns over both price stability and employment.

“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.

This marks Powell’s final major policy speech as Federal Reserve Chair, and investors are closely watching for clues on the future path of interest rates.

For now, Powell is treading a fine line — weighing the risk that President Donald Trump’s sweeping tariffs could stoke sustained inflation against the possibility of a sharp slowdown in the labor market. He’s also navigating this delicate moment under continued 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 Federal Reserve, which is set to hold its next policy meeting in mid-September, has kept interest rates unchanged between 4.25% and 4.50% since its last cut in December.

Policymakers have so far pointed to a resilient labor market as justification for holding rates steady, even as they assess the economic impact of former President Donald Trump’s sweeping tariffs.

Economists warn that higher tariffs could stoke inflation, which the Fed typically counters by maintaining elevated interest rates. However, signs of strain in the labor market have sparked debate over whether rate cuts may now be needed to support growth.

The Fed’s preferred inflation gauge rose 2.6% in June compared to a year earlier, while the core index — excluding food and energy — climbed 2.8%, both remaining above the central bank’s 2% target.

At the same time, recent data revealed that hiring in May and June was significantly weaker than previously reported, adding to concerns that job growth is slowing.

This unease was reflected in the Fed’s July policy decision, when governors Christopher Waller and Michelle Bowman dissented for the first time since 1993, voting in favor of a 25 basis-point rate cut — a move the rest of the board rejected.

Markets are now anticipating a shift: CME Group’s FedWatch Tool indicates a 75.6% 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 inputs from agencies