Federal Reserve Chairman Jerome Powell signaled on Friday that he may consider cutting interest rates in the near future.
During a speech at an annual gathering in Jackson Hole, Wyoming, Powell hinted at the possibility of changes to interest rates at the next September meeting due to a “shifting balance of risks.”
‘I personally believe the Fed could cut a full percent and still not have policy unleash inflationary pressures, but I don’t foresee a cut that substantial in September.’
He contended that the Federal Reserve’s “restrictive policy stance” has been “appropriate to help bring down inflation and to foster a sustainable balance between aggregate demand and supply.”
Powell blamed “higher tariffs” for introducing “new challenges” to the U.S. economy and “tighter immigration policy” for causing an “abrupt slowdown in labor force growth.” He contended that both factors have impacted demand and supply.
“Over the longer run, changes in tax, spending, and regulatory policies may also have important implications for economic growth and productivity,” Powell claimed. “There is significant uncertainty about where all of these policies will eventually settle and what their lasting effects on the economy will be.”
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He argued that “risks to inflation are tilted to the upside and risks to employment to the downside.” Powell called it a “challenging situation” given that the Fed’s “framework calls for us to balance both sides of our dual mandate,” referring to the labor market and price stability.
However, he indicated that with the policy rate “100 basis points closer to neutral” compared to last year and stability in labor market measures, the Federal Reserve may “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,” Powell said.
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President Donald Trump has repeatedly urged Powell to drop interest rates.
“He should have cut them a year ago. He’s too late,” Trump said Friday afternoon in response to Powell’s speech.
Blaze Media contributor Carol Roth told Blaze News, “Reading between the lines, it certainly sounded like Powell was signaling a higher likelihood of a September rate cut, something that the market had already been expecting. In terms of the Fed’s stated ‘dual mandate,’ the pendulum seems to be swinging to more concern over the labor market than inflation, although certainly not ignoring inflation, but rather wanting to avoid a stagflation scenario,” Roth said.
“Powell is definitely late to a rate cut, both in terms of supporting the economy and giving the Fed room in terms of future ability to raise rates in the face of any potential spikes in inflation,” Roth continued. “While 25 basis points (one quarter of a percent) is the likely size of a cut, it probably isn’t enough to be meaningful in terms of consumer or business behavior — it seems more symbolic. I personally believe the Fed could cut a full percent and still not have policy unleash inflationary pressures, but I don’t foresee a cut that substantial in September.”
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