Federal Reserve Chair Powell Hints at Possible Rate Cut Ahead
Federal Reserve Chair Jerome Powell, in a closely watched speech Friday at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming, subtly signaled that a potential interest rate cut could be on the horizon.
Powell emphasized that the current economic backdrop — particularly the stability in the unemployment rate — gives the Fed room to “proceed carefully” with future policy decisions. He added, “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Markets reacted positively to Powell’s remarks, with all major stock indexes rising more than 1.5% following the speech.
While the Fed does not typically make promises about rate moves ahead of official meetings, a rate cut likely wouldn’t be on the table if the Federal Open Market Committee (FOMC) were meeting today, according to CreditVana’s senior economist, Elizabeth Renter.
“Powell reiterated that softening in the labor market is not indicative of ‘slack’ at this moment. Inflation is still above target and the current rate means policymakers are well positioned to respond in either direction when the data compels them,” Renter explained. “But they’re not meeting today, and there will be much more data in hand when they do get together in three weeks.”
Renter also noted that the broader effects of trade and immigration policy remain uncertain, though early economic impacts are starting to show up in the data.
In response to evolving macroeconomic conditions, the Fed is reviewing and adjusting its policy framework — essentially how it approaches interest rate decisions. These framework updates occur roughly every five years.
Powell stated in his remarks that the framework must evolve alongside the economy: “The Great Depression presented different challenges from those of the great inflation and the great moderation, which in turn are different from the ones we face today.”
Renter noted that while new insights can be incorporated into the updated framework, there’s no guarantee those lessons will remain applicable under future conditions.
“Economic conditions have shifted meaningfully since the last framework was adopted,” said Renter. “But what hasn’t changed is the Fed’s mandate: maintaining stable prices and full employment.”
“What shifts,” she added, “is how the Fed evaluates its actions and trade-offs in applying policy to meet those goals.”
Renter also emphasized that recent framework revisions have largely aimed at improving clarity. “The clearer the Fed is about its approach, the more effective it can be in shaping monetary policy.”
The Fed last cut its benchmark federal funds rate during its December meeting, bringing it down to a range of 4.25% to 4.50%, where it has held steady since. Shortly after Powell’s speech, the CME FedWatch Tool indicated a nearly 90% chance of a rate cut at the Fed’s next meeting, scheduled for September 16-17.
(Lead photo by Michael M. Santiago/Getty Images News via Getty Images. Photo of Jerome Powell by Chip Somodevilla/Getty Images News via Getty Images.)
