Powell Highlights Job Market Worries, Opening Path to Rate C

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Dow Jones NewsAug 22, 2:00 PM UTC
DJ Powell Highlights Job Market Worries, Opening Path to Rate Cut -- WSJ

By Nick Timiraos

 

JACKSON HOLE, Wyo. -- Federal Reserve Chair Jerome Powell opened the door for the central bank to cut rates as soon as its meeting next month when he said the prospect of a sharper slowdown in the job market might reduce concerns that cost increases due to tariffs will fuel inflation.

 

Throughout the year, Powell and his colleagues have held rates steady, pointing to a solid labor market and uncertainty over the inflation outlook given large tariff hikes. But Powell suggested the outlook was changing in a direction that could justify a resumption of rate cuts in a widely watched address at a conference in Wyoming on Friday.

 

"The balance of risks appears to be shifting," Powell said, according to remarks prepared for delivery. While labor markets appear to be stable, "it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers."

 

That has led to an "unusual situation" in which the risks of worse-than-expected labor-market outcomes are rising, he said. "And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment," Powell said.

 

His comments follow a period of unusually intense pressure on the central bank by President Trump and his senior advisers, who have called on the Fed to aggressively cut interest rates.

 

Still, Powell's comments tempered expectations of an aggressive string of rate cuts by pointing to concerns around inflation, which has been above the Fed's 2% target for more than four years.

 

Powell said the effects that tariffs are having on consumer prices "are now clearly visible" and are expected to accumulate in the months ahead. The question for the Fed is whether those price increases will "materially raise the risk of an ongoing inflation problem," Powell said.

 

Powell for the first time suggested somewhat greater confidence in a base-case forecast that the effects of higher goods prices due to tariffs would be relatively short-lived. He cautioned that a "one-time" increase in prices didn't necessarily mean "all at once" because it will take time for tariff increases to filter through supply chains, he said.

 

Powell said it was possible, however, that tariffs-driven cost increases could spur a more lasting inflation problem, for example, if workers who see their inflation-adjusted incomes falling are able to secure higher wages from employers. "Given that the labor market is not particularly tight and faces increasing downside risks, that outcome does not seem likely," he said.

 

He said the central bank would also remain highly focused on ensuring that measures of consumers' and businesses' expectations of future inflation didn't climb. Many economists and central bankers believe those higher inflation expectations can be self-fulfilling. "Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem," he said.

 

The upshot is that the risk of higher inflation, even if temporary, and a softening in the labor market puts the Fed in a "challenging situation, " he said. Because the Fed has cut interest rates by 1 percentage point compared with a year ago, rates are at a somewhat less restrictive setting that allows the Fed to "proceed carefully as we consider changes to our policy stance," he said.

 

But he said the combination of a still-restrictive interest-rate stance given the changing economic outlook "may warrant adjusting our policy stance."

 

Write to Nick Timiraos at Nick.Timiraos@wsj.com

(END) Dow Jones Newswires

 

August 22, 2025 10:00 ET (14:00 GMT)

 
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