JACKSON HOLE, Wyo.–Federal Reserve Chairman Jerome H. Powell sent a strong signal in remarks here that the Fed could begin reducing interest rates when it next meets in September.
In his closely watched comments at the Fed’s annual retreat in Jackson Hole, Powell did not explicitly state he endorses a reduction in borrowing costs, but he focused on indicators of a weakening economy that might be in need of lower rates.
“The balance of risks appears to be shifting,” Powell said, pointing to a softening in the labor market and the fact inflation has largely been brought under control. “The shifting balance of risks may warrant adjusting our policy stance.”
Two Sides to Issue
Powell said the slowdown in monthly jobs growth could either reflect a pullback in demand from employers or could be the result of a reduction in the supply of workers resulting from President Trump’s immigration crackdown.
He described the employment market as a “curious kind of balance” that deserves to be watched with caution.
“This unusual situation suggests that downside risks to employment are rising,” Powell said in his remarks. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
Tariff Concerns Downplayed
Powell emphasized, however, that inflation remains too high even has he played down concerns that Trump’s tariffs are putting pressure on prices. “A reasonable base case is that the effects will be relatively short lived — a one-time shift in the price level,” Powell said. “Of course, ‘one-time’ does not mean ‘all at once.’ It will continue to take time for tariff increases to work their way through supply chains and distribution networks.”
As the CU Daily has reported, numerous forecasters have predicted multiple rate cuts this year, beginning in September, but Powell said only that the Fed would need to “proceed carefully” and signaled that if it does reduce rates in September, that pace at which it moves will be dictated by how the economy is evolving.
