US Federal Reserve chairman Jerome Powell hinted today that the Fed is moving closer to resuming rate cuts amid greater "downside risks to employment" after holding its target rate steady all year to gauge the impacts of President Donald Trump's evolving tariff and fiscal policies.
"With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," Powell said in prepared remarks at the annual central banker's symposium in Jackson Hole, Wyoming.
"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," he said. "This unusual situation suggests that downside risks to employment are rising."
"And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment," he said.
'September easing nailed on'
The CME's FedWatch tool, after his remarks, showed 89.2pc probability the Fed will cut its target rate by a quarter point at its next meeting in late September, up from 75pc odds on Thursday. The S&P 500 stock index surged more than 2pc. The DXY dollar index fell by about 0.9pc to 97.74.
"A September easing looks nailed on, with more likely to follow," Pantheon Macroeconomics headlined its analysis of Powell's remarks.
Fed policymakers have kept the target rate unchanged at 4.25-4.5pc throughout 2025, after dropping it by 1 percentage point in three meetings late last year.
President Donald Trump has repeatedly lambasted Powell for not moving rates lower, threatening at times to sack him and ordering the launch of an investigation this week into a voting member of the Federal Open Market Committee (FOMC) over alleged mortgage fraud.
The Fed has a dual mandate to maintain low inflation and maximum employment. Its inflation target is about 2pc and unemployment has remained at a historically low 4-4.2pc for the past year.
But job growth, including revisions, in the three months through July slowed to just 35,000 a month, the lowest since 2020, when Covid-19 shutdowns pushed the US into a brief recession.
Powell also pointed out that GDP growth had slowed to an annual 1.2pc pace in the first half of the year, about half the 2.5pc rate in 2024.
At the same time, he said "higher tariffs have begun to push up prices in some categories of goods."
He said estimates indicate that total Personal Consumption Expenditure inflation, the Fed's favorite gauge of inflation, rose by 2.6pc over the 12 months ending in July. He said inflation has remained "above our target for more than four years," but added longer-term inflation expectations "... appear to remain well anchored and consistent without our longer-run inflation objective of 2pc."
Still, he said in closing: "Monetary policy is not on a preset course. 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."
