Fed chair says conditions may call for interest rate cut, but uncertainty complicates task

Federal Reserve Chair Jerome Powell said the Fed is committed to a 2% inflation target

Federal Reserve Chair Jerome Powell hinted in a speech during the Jackson Hole Economic Symposium on Friday at the possibility of future interest rate cuts, but emphasized that the high level of uncertainty makes the task more difficult for monetary policymakers.

Major changes in tax, trade, and immigration policies have shifted the balance of risks, he said, adding that the labor market remains strong, and the economy has shown resilience, but risks have increased.

Tariffs could push inflation higher again, a scenario the Fed aims to avoid, the Fed Chairman said, as the Fed’s benchmark interest rate is now 1% lower compared to last year.

The low unemployment rate allows for cautious progress when considering policy adjustments. However, monetary policy is tight, and the baseline outlook, along with the shift in the balance of risks, may call for a policy adjustment, Powell said.

“Conditions allow for progress, and we are studying changes to our policy,” he stated.

FOMC decisions will be made based solely on data assessment, Powell said, adding there will be no deviation from this approach.

The impact of tariffs may be short-term, the Chairman said, adding that the transmission of these effects through supply chains and distribution networks may take longer.

FOMC has learned from the experience of adopting a flexible average inflation targeting framework since 2020. That experience helped the Fed confront rising inflation later on.

The Fed is committed to a 2% inflation target and this goal helps maintain stability in long-term inflation expectations.

Powell said that the economy is facing new challenges and job growth has slowed.

However, the labor supply and demand are unusually balanced, with economic growth slowing due to a decline in consumer spending.

The Fed will continue reviewing its policies every five years to adapt to structural changes in the economy, Powell stated.