Federal Reserve Chair Jerome Powell on Friday opened the door ever so slightly to lowering a key interest rate in the coming months but gave no hint on the timing of a move and suggested the central bank will proceed cautiously as it continues to evaluate the impact of tariffs and other policies on the US economy.
In a high-profile speech at Jackson Hole Banking Symposium in Wyoming, that has been watched closely by the White House and on Wall Street, Powell said that there are risks of both rising unemployment and stubbornly higher inflation.
That puts the Fed in a tough spot, because it would typically cut its short-term rate to boost hiring, while keeping it high—or raising it—to fight inflation.
“The stability of the unemployment rate and other labour market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in prepared remarks.
That suggests the Fed will continue to evaluate jobs and inflation data as it decides whether to cut rates, including at its next meeting on 16-17 September.
“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added, a more direct sign that Powell is considering a rate cut than he has made in previous comments.
Still, Powell’s remarks suggest the Fed will still proceed carefully in the coming months and will make its rate decisions based on how inflation and unemployment evolve in the coming months. That may frustrate financial markets, which have hoped for clearer signals of the Fed’s next moves, and President Donald Trump, who has chastised Powell for not lowering rates sooner.
Wall Street rallies on hopes for lower interest rates
Wall Street is rallying after Powell’s words, despite no time frame being given for when the Fed would next cut rates.
Wall Street loves lower rates as they can give a boost to the economy and to investment prices, even if they risk worsening inflation at the same time.
Just after 4 pm in Europe, as Powell started talking, his words made the S&P 500 jump 1.3% as the index erased all of its loss for the week. It’s coming off its fifth straight modest loss after setting an all-time high last week. The Dow Jones Industrial Average was up 649 points, or 1.4%, and the Nasdaq composite was 1.3% higher.
President Donald Trump has angrily been calling for lower rates, often insulting Powell while doing so. And a surprisingly weak report on job growth this month pushed many on Wall Street to assume cuts are coming as soon as the Fed’s next meeting in September.
Powell said the job market looks ok at the moment, even if “it is a curious kind of balance” where fewer new workers are chasing after fewer new jobs.
In his remarks, the Fed chair underscored that tariffs are lifting inflation and could push it higher in the coming months. He also suggested that the job market isn’t clearly weakening in a way that would push the Fed to reduce borrowing costs, which can boost growth and hiring.
