Powell signals Fed may cut rates soon even as inflation risks remain
[August 23, 2025] By
CHRISTOPHER RUGABER AP
JACKSON HOLE, Wyo. (AP) — Federal Reserve Chair Jerome Powell on Friday
opened the door ever so slightly to lowering a key interest rate in the
coming months but gave no hint on the timing of a move and suggested the
central bank will proceed cautiously as it continues to evaluate the
impact of tariffs and other policies on the economy.
In a high-profile speech closely watched at the White House and on Wall
Street, Powell said that there are risks of both rising unemployment and
stubbornly higher inflation. Yet he suggested that with hiring sluggish,
the job market could weaken further.
“The shifting balance of risks may warrant adjusting our policy stance,”
he said, a reference to his concerns about weaker job gains and a more
direct sign that the Fed is considering a rate cut than he has made in
previous comments.
Still, Powell’s remarks suggest the Fed will proceed carefully in the
coming months and will make its rate decisions based on how inflation
and unemployment evolve. The Fed has three more meetings this year,
including next month, in late October, and in December, and it's not
clear whether the Fed will cut at all those meetings.
“The stability of the unemployment rate and other labor market measures
allows us to proceed carefully as we consider changes to our policy
stance,” Powell said. That suggests the Fed will continue to evaluate
jobs and inflation data as it decides whether to cut rates.
The stock market jumped in response to Powell's remarks, with the broad
S&P 500 index rising 1.5% in midday trading.
“We see Powell’s remarks as consistent with our expectation of” a
quarter-point cut to the Fed's short-term rate at its Sept. 16-17
meeting, economists at Goldman Sachs wrote in a note to clients. The
Fed's rate currently stands at 4.3%.
Powell spoke with the Fed under unprecedented public scrutiny from the
White House, as President Donald Trump has repeatedly insulted Powell
and has urged him to cut rates, arguing there is “no inflation” and
saying that a cut would lower the government’s interest payments on its
$37 trillion in debt.
Trump also says a cut would boost the moribund housing market. A rate
cut by the Fed often leads to lower borrowing costs for mortgages, car
loans, and business borrowing, but it doesn't always.
While Powell spoke, Trump elevated his attacks, telling reporters in
Washington, D.C. that he would fire Federal Reserve Governor Lisa Cook
if she did not step down over allegations from an administration
official that she committed mortgage fraud.
If Cook is removed, that would give Trump an opportunity to put a
loyalist on the Fed's governing board. The Fed has long been considered
independent from day-to-day politics. The president can't fire a Fed
governor over disagreements on interest rate policy, but he can do so
“for cause,” which is generally seen as malfeasance or neglect of duty.
Later Friday, Trump told reporters, referring to Powell, “We call him
too late for a reason. He should have cut them a year ago. He’s too
late.”
Powell spoke at the Fed’s annual economic symposium in Jackson Hole,
Wyoming, a conference with about 100 academics, economists, and central
bank officials from around the world. He was given a standing ovation
before he spoke.
Cook, who is also attending the conference, declined to comment on the
president's remarks.
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 In his remarks, the Fed chair
underscored that tariffs are lifting inflation and could push it
higher in the coming months.
“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,” Powell said.
Inflation has crept higher in recent months though
it is down from a peak of 9.1% three years ago. Tariffs have not
spurred inflation as much as some economists worried, but they are
starting to lift the prices of heavily imported goods such as
furniture, toys, and shoes.
Consumer prices rose 2.7% in July from a year ago, above the Fed’s
target of 2%. Excluding the volatile food and energy categories,
core prices rose 3.1%.
Powell added that higher prices from tariffs could cause a one-time
shift to prices, rather than an ongoing bout of inflation. Other Fed
officials have said that is the most likely outcome and as a result
the central bank can cut rates to boost the job market.
The Fed chair said it is largely up to the central bank to ensure
that tariffs don’t lead to sustained inflation.
“Come what may, we will not allow a one-time increase in the price
level to become an ongoing inflation problem,” he said, suggesting
deep rate cuts, as Trump has demanded, are unlikely.
Regarding the job market, Powell noted that even as hiring has
slowed sharply this year, the unemployment rate remains low. He
added that with immigration falling sharply, fewer jobs are needed
to keep unemployment in check.
Yet with hiring sluggish, the risks of a sharper downturn, with
rising layoffs, has risen, Powell said.
Powell also suggested the Fed would continue to set its
interest-rate policy free from political pressure.
Fed officials “will make these decisions, based solely on their
assessment of the data and its implications for the economic outlook
and the balance of risks. We will never deviate from that approach.”
Powell dedicated the second half of his speech to announcing changes
to the Fed's policy framework that was issued in August 2020. The
framework, which has been blamed for delaying the Fed’s response to
the pandemic inflation spike, provides guidelines on how the Fed
would respond to changes in inflation and employment.
In 2020, after a decade of low inflation and low interest rates
following the financial crisis and Great Recession in 2008-2009, the
Fed changed its framework to allow inflation to top its 2% target
temporarily, so that inflation would average 2% over time.
And after unemployment fell to a half-century low in 2018, without
pushing up inflation, the 2020 framework said that the Fed would
focus only on “shortfalls” in employment, rather than “deviations.”
That meant it would cut rates if unemployment rose, but wouldn’t
necessarily raise them if it fell.
The Fed reviewed its framework this year and concluded that it was
tied too closely to the pre-pandemic economy, which has since
shifted. Inflation spiked to a four-decade high in 2022 and the Fed
rapidly boosted interest rates afterward.
“A key objective has been to make sure that our framework is
suitable across a broad range of economic conditions,” Powell said.
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