Federal Reserve Chair Jerome Powell has opened the door to potential interest rate cuts in his final Jackson Hole speech as Fed Chair, citing growing risks to employment while acknowledging that tariffs are visibly pushing up consumer prices.
In what will likely be remembered as his most consequential Jackson Hole speech, the Fed Chair told the annual economic symposium in Wyoming on Friday that “downside risks to employment are rising” and warned of an “unusual situation” in labour markets that could quickly deteriorate.
JUST IN: 🇺🇸 Fed Chair Jerome Powell suggests current conditions ‘may warrant’ interest rate cuts. pic.twitter.com/Ogn5NsxHOz
— Watcher.Guru (@WatcherGuru) August 22, 2025
Markets Rally on Rate Cut Signals
Financial markets rallied immediately following Jerome Powell’s speech, with Treasury yields falling sharply as investors interpreted his remarks as a clear signal that Fed rate cuts are imminent. The benchmark 10-year Treasury yield dropped to its lowest level in two weeks.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell stated in his prepared remarks.
This carefully crafted language represents the strongest indication yet that the Federal Reserve is preparing to lower interest rates at its September meeting. Markets are now pricing in approximately 75% probability of a quarter-point cut next month.
Employment Concerns Take Centre Stage
Powell devoted significant attention to labour market conditions, describing them as being in a “curious state of balance” where both supply and demand for workers are slowing simultaneously. The July jobs report showed just 73,000 new positions created, well below expectations.
Key Labour Market Data:
- July job gains: 73,000 (well below 110,000 estimate)
- Three-month average: 35,000 new jobs
- Unemployment rate: 4.3% (up from 4.1% in June)
- Major downward revisions to May and June employment figures
“This unusual situation suggests that downside risks to employment are rising,” Powell warned. “And if those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
Tariff Impact on Inflation Acknowledged
In a notable shift from previous communications, Powell explicitly acknowledged that President Donald Trump’s tariffs are having a measurable impact on consumer prices. “The effects of tariffs on consumer prices are now clearly visible,” he stated.
The Fed Chair noted that tariff-driven price increases are expected to “accumulate over the coming months,” though he suggested these effects might prove temporary rather than leading to persistent inflation.
Current Inflation Metrics:
- Core PCE (Fed’s preferred measure): 2.6% in June
- Well above Fed’s 2% target
- Rising trend from 2.1% low in April 2025
Political Pressures Mount
The Jackson Hole speech comes amid unprecedented political pressure from the Trump administration. The President has repeatedly demanded Powell’s resignation and criticised the Fed’s handling of interest rates, calling the Chair a “total loser” after the central bank kept rates unchanged at its July meeting.
Powell notably avoided direct reference to these political attacks in his address, maintaining the Fed’s traditional stance of independence. However, his acknowledgment of tariff impacts represents a subtle shift in messaging.
Framework Review Signals Policy Changes
Beyond immediate rate policy, Powell’s speech was billed as an “Economic Outlook and Framework Review,” suggesting broader changes to the Fed’s approach to monetary policy. Analysts expect the central bank to move away from its 2020 “flexible average inflation targeting” framework.
Deutsche Bank’s Matthew Luzzetti notes that Powell’s speech could “restore a more preemptive strategy for monetary policy that recognises risks of supply shocks and return to a balanced view of inflation and the job market.”
Markets Position for September Action
Financial markets have shifted dramatically in their expectations for Fed rate cuts following recent economic data. Futures markets now price in:
- 75% probability of 0.25% cut in September
- Nearly 100% chance of at least one cut by year-end
- Potential for multiple cuts if labour market weakens further
“A rate cut is probably coming soon,” analysts concluded after parsing Powell’s key statement about policy adjustments being warranted.
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Final Jackson Hole Legacy
This marks Powell’s final appearance at the prestigious Jackson Hole Economic Symposium as Fed Chair, with his term expiring in May 2026. The timing adds particular weight to his remarks, representing a potential capstone to his tenure leading the central bank through the COVID pandemic, historic inflation, and now potential policy easing.
The Fed’s next meeting on 17th-18th September will likely determine whether Powell’s Jackson Hole hints translate into actual policy action. For investors and economists alike, Friday’s speech may be remembered as the moment the Fed definitively pivoted toward accommodation after eight months of holding rates steady.
Next Key Dates:
- 6th September: August jobs report
- 17th-18th September: Next Fed meeting
- October: Fed Chair Powell’s term countdown begins
As markets digest Powell’s carefully calibrated message, all eyes now turn to incoming economic data that will determine whether the Fed acts on these hints with concrete rate cuts in the coming months.
