The possibility of lower interest rates is gaining traction, though it’s not yet a certainty.

Federal Reserve Chair Jerome Powell indicated that the central bank might consider reducing the federal funds rate during its upcoming policy committee meeting in September.Speaking at the Jackson Hole economic symposium on friday, POWELL suggested that increasing risks in the job market might necessitate a shift in the Federal Reserve’s current monetary policy, which has maintained high rates to curb borrowing and combat inflation.

“With policy in restrictive territory,the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” POWELL stated.

POWELL’s highly anticipated speech addressed the impact of President Donald Trump’s trade policies, particularly import taxes, on the economy and the Federal Reserve’s dual mandate to maintain low inflation and high employment. He noted recent data indicating that employers are reducing hiring due to tariffs, a trend that could lead to notable layoffs.

“while the labor market appears to be in balance,it is indeed a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” POWELL saeid. “This unusual situation suggests that downside risks to employment are rising.And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”

Additionally, POWELL pointed out that tariffs are contributing to rising prices.While this effect might be temporary, it could trigger a period of high inflation, especially given that prices are already increasing faster than the Fed’s target of 2% annually, according to POWELL.

“The upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed,” he said.

However, POWELL suggested that the struggling job market makes it unlikely that tariffs would cause an inflationary spiral where workers demand higher wages to offset increasing living costs, as seen in the 1970s.

POWELL acknowledged the Fed’s challenge in setting monetary policy when its dual mandate is pulling in conflicting directions: high inflation typically requires high interest rates, while a slowing job market would necessitate lower rates. The fed funds rate influences interest rates on various types of loans.

“In the near term,risks to inflation are tilted to the upside,and risks to employment to the downside-a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” POWELL stated.

Financial markets have interpreted POWELL’s speech as a signal toward potential interest rate cuts in September. Following the speech, investors priced in a 91.5% probability of a September rate cut,up from 75% the previous day,based on the CME Group’s fedwatch tool,which forecasts rate movements using fed funds futures trading data.

“Fed Chair Powell’s comments at Jackson Hole were more dovish than we and markets were expecting.”

Understanding the Fed’s Dilemma