Powell Speech Today At Jackson Hole: Fed Chair Says That Conditions ‘May Warrant’ Careful Interest Rate Cuts

Federal Reserve Chair Jerome Powell said on Friday in his Jackson Hole speech that the current economic conditions in the U.S. “may warrant” careful interest rate cuts from the central bank.

Powell underscored that while the U.S. economy has shown resilience, downside risks are on the rise.

The Fed Chair addressed lingering questions about the weakness in the jobs market, noting that both the supply of and demand for workers had witnessed a slowdown, citing employment data for July.

“This unusual situation suggests that downside risks to employment are rising. If those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” he said.

Powell also remarked about President Donald Trump’s tariffs, stating that they are leading to an increase in risks of inflation surging again. “The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over the coming months, with high uncertainty about timing and amounts,” he said. The Fed Chair added that the question that matters for monetary policy is whether these price increases are likely to raise the risk of an ongoing inflation problem materially.

The Fed Chair also warned that Trump’s tariffs could result in a more lasting inflation dynamic, and said it remains a risk that will need to be assessed and managed. He also indicated that the dynamic tariff scenario is potentially prolonging the adjustment process.

Data from the CME FedWatch tool now points to a 91.3% probability of the Fed cutting interest rates by 25 basis points in September, surging from 71.3% earlier on Friday, but still down from 94% last week.

Meanwhile, U.S. equities edged up in Friday morning’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 1.26%, while the Invesco QQQ Trust (QQQ) surged 1.38%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.51% at the time of writing.

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