Jackson Hole Economic Policy Symposium: Has Jerome Powell Hinted At 25 Bps Rate Cut In September? Full Details

US Federal Reserve Chair Jerome Powell, in his Jackson Hole speech on August 22, signaled a rate cut scenario soon, as he said, "Upside risks to inflation had diminished." However, experts added that Powell also hinted at a low possibility for rate cuts after that. Powell said the effects of tariffs on consumer prices are clearly visible, and these are likely to accumulate over coming months.

"In my remarks today, I will first address the current economic situation and the near-term outlook for monetary policy. I will then turn to the results of our second public review of our monetary policy framework, as captured in the revised Statement on Longer-Run Goals and Monetary Policy Strategy that we released today," said Powell.

"When I appeared at this podium one year ago, the economy was at an inflection point. Our policy rate had stood at 5-1/4 to 5-1/2 percent for more than a year," said Powell.

According to Powell, the status quo for over a year in the federal rates and restrictive policy stance was appropriate to help bring down inflation and to foster a sustainable balance between aggregate demand and supply.

"Inflation had moved much closer to our objective, and the labor market had cooled from its formerly overheated state," said Powell.

He added, "Upside risks to inflation had diminished. But the unemployment rate had increased by almost a full percentage point, a development that historically has not occurred outside of recessions."

According to Heather Long, a chief economist at Navy Federal said, "Fed Chair Powell is indicating a 25bps September rate cut is **highly likely**. His Jackson Hole speech is about as clear cut as the Fed gets."

She added, "But...he's also signaling don't bet on a bunch more rate cuts after that. Fed leaders will still be watching what happens with tariff-induced inflation."

Furthermore, Powell said, "The labor market is a case in point."

The labour report of July revealed that payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024.

"But it does not appear that the slowdown in job growth has opened up a large margin of slack in the labor market-an outcome we want to avoid," Powell said.

Furthermore, he added, " Labor supply has softened in line with demand, sharply lowering the "breakeven" rate of job creation needed to hold the unemployment rate constant. Indeed, labor force growth has slowed considerably this year with the sharp falloff in immigration, and the labor force participation rate has edged down in recent months."

Turning to inflation, Powell believes higher tariffs have begun to push up prices in some categories of goods.

"The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts," he said.

However, the question that matters for monetary policy, as per Powell, is whether these price increases are likely to materially raise the risk of an ongoing inflation problem.

"A reasonable base case is that the effects will be relatively short lived-a one-time shift in the price level. 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. Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process," Powell said.

Notably, Powell also believes that possibility of upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed.

"Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," he said.