Powell Signals Possible September Rate Cut as Risks Shift

Federal Reserve Chair Jerome Powell suggested on Friday that shifting risks in the U.S. economy could justify an interest rate cut as soon as September, signaling that policymakers are carefully weighing the balance between controlling inflation and protecting a weakening labor market.

Speaking at the Fed’s annual conference in Jackson Hole, Wyoming, Powell said the economy has reached what he described as a “curious kind of balance,” with both the supply of and demand for workers slowing noticeably. He noted that July’s employment report showed job growth had been weaker than earlier estimates, raising concerns that layoffs and unemployment could climb if conditions deteriorate further.

“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. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

Financial markets responded swiftly to Powell’s remarks. Treasury yields tumbled, the S&P 500 gained ground, and the U.S. dollar fell. Ahead of the speech, futures markets placed the likelihood of a rate cut at the Federal Open Market Committee’s September 16–17 meeting at roughly 75 percent.

Powell also cautioned that inflationary pressures tied to President Donald Trump’s tariffs remain a concern. He said while the effects of tariffs on consumer prices may prove short-lived, they could also trigger a more lasting inflation dynamic, requiring careful monitoring. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” Powell added.

In his remarks, Powell outlined changes to the Fed’s long-term strategy, reversing elements of its 2020 framework that allowed inflation to run above target for periods of time. The updated language suggests less tolerance for an overheated labor market while reaffirming the central bank’s commitment to its 2 percent inflation goal.

The debate within the Fed remains divided. Cleveland Fed President Beth Hammack and Kansas City Fed President Jeff Schmid have expressed caution about cutting rates too quickly, while San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari have pointed to labor market weakness as grounds for easing policy. Powell’s comments position him between the two camps, leaving the door open for a cut in September if economic conditions worsen.