Fed Chair Powell Signals Potential Rate Cut in Jackson Hole Speech

JACKSON HOLE, Wyo., Aug. 22, 2025 (Reuters) – On Friday, Federal Reserve Chair Jerome H. Powell gave a careful yet optimistic speech. He said that conditions “may warrant” lowering interest rates at the Fed’s September meeting. However, he warned about ongoing risks to jobs and inflation.

In his keynote at the annual Economic Policy Symposium, Powell highlighted a “curious kind of balance” in the labor market. Both labor supply and demand are slowing. This raises risks for jobs, which “could materialize swiftly” as sharp layoffs and higher unemployment. He mentioned that recent tariff hikes have raised prices. But he expects these effects to be short-lived and thinks there’s a “reasonable base case.”

Powell announced the results of the Fed’s second public review of its monetary policy. He highlighted changes to the central bank’s Statement on Longer-Run Goals and Monetary Policy Strategy, which was released today. Key changes are: - Removal of explicit language on the effective lower bound. - Return to flexible inflation targeting without a “makeup” strategy. - A more balanced approach when employment and inflation goals differ. Powell stressed that the Fed will act decisively. They will use all their tools to keep long-term inflation expectations stable. This helps support price stability and maximum employment.

Markets reacted positively to Powell’s signals. Stock indices rose. The S&P 500 is set to end a five-day losing streak. Meanwhile, Treasury yields fell as investors reconsidered when the Fed might cut rates for the first time since December 2024.

Powell asked policymakers and markets to keep an eye on upcoming labor market and inflation data. He emphasized that shifting risks will shape the Federal Open Market Committee’s choices during its meeting on Sept. 16–17. He emphasized that monetary policy will rely on new data and the Fed’s dual mandate. It will stay clear of political pressures.