Federal Reserve Chair Jerome Powell on Friday highlighted twin economic risks of a slowing labor market and rising inflation, but opened the door to rate cuts in a widely anticipated speech at the annual Jackson Hole, Wyoming economic forum.
"Risks to inflation are tilted to the upside, and risks to employment are to the downside — a challenging situation," Powell said in his speech.
The Fed will "proceed carefully" but the shifting balance of risks "may warrant adjusting our policy stance," Powell said.
Powell's comments come as he faces a range of pressures, including President Trump's repeated calls for his resignation and conflicting economic signals that could make it tougher for the Fed to fulfill its dual mandate of promoting full employment while keeping inflation in check.
A central question for the Fed — as well as for everyone from the White House to borrowers and investors — is whether it is inclined to push down interest rates at its next meeting, set for September 16-17, for the first time since December 2024.
When monetary policy makers opted to hold rates steady last month, Powell highlighted the growing economic uncertainty stemming from Mr. Trump's tariffs, while adding that he believed the economy remained on solid ground.
Yet subsequent economic data has pointed to a slowdown. Job growth — a key measure of the economy's strength — significantly undershot economists' forecasts, while a large downward revision in May and June payroll gains suggested the labor market was shakier than previously thought.
At the same time, the Fed is closely watching the nation's inflation rate, which remains stubbornly above the central bank's 2% annual target and which has inched higher in recent months. Under the Fed's mandate, the central bank is tasked with keeping both inflation and unemployment low.
"The Fed is being put in a tough spot, with pressures to cut interest rates as inflation rises and the labor market decelerates — with both of those metrics moving in the opposite direction from the Fed's dual mandate," eToro U.S. investment analyst Bret Kenwell said in an email before Powell's speech.
The probability of a rate cut at the Fed's September meeting stands at about 72%, according to CME FedWatch, which bases its calculations on 30-Day Fed Funds futures prices.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
