Federal Reserve Chair Jerome Powell sent a subtle but unmistakable signal that the central bank might lower interest rates next month as he addressed policymakers Friday at their annual economic symposium in Jackson Hole, Wyo.
Powell told attendees he expected inflation to continue to accelerate and the labor market to continue to slow, according to prepared remarks. He described it as an “unusual situation [that] suggests that downside risks to employment are rising,” building the case for stoking economic growth.
Investors, whose hopes for a rate cut were recently dampened by conflicting economic data, responded by sending stocks up: Major indexes leapt more than 1%.
“The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
The central bank had for months held rates steady as policymakers awaited greater clarity on how President Donald Trump’s trade agenda could affect the economy. But on Friday Powell said, “the effects of tariffs on consumer prices are now clearly visible.”
“A reasonable base case is that the effects will be relatively short lived — a one-time shift in the price level,” Powell added.
He made no mention of the central bank’s independence as it withstands pressure from Trump and his allies to bend monetary policy to his liking. Administration officials this week pivoted from scrutinizing Powell’s handling of the renovation of the Fed’s headquarters to allegations that central bank governor Lisa Cook committed mortgage fraud.