Federal Reserve Chair Jerome Powell signaled on Friday that a potential interest rate cut could come as early as September, citing evolving economic risks. Speaking at the Jackson Hole economic symposium in Wyoming, Powell stated, “With monetary policy in restrictive territory, the overall outlook and shifting risk balance could warrant an adjustment to our stance.” Though the phrasing may seem cautious, within central banking language, this strongly suggests the Fed is preparing to act after five consecutive meetings without changes.\n\nMarkets reacted swiftly. Lower borrowing costs typically ease financial pressure on households and businesses, stimulating economic activity. As a result, major U.S. equity indices surged more than 1.5%, with the S&P 500 nearing record highs, while European markets rose close to 1%. Assets like gold and bitcoin also gained value, while the U.S. dollar weakened, falling over one full point against the euro to trade at 1.17. Such movements align with expectations of looser monetary conditions.\n\nEchoing his 2024 Jackson Hole speech, where he similarly foreshadowed rate reductions, Powell highlighted labor market softening as a growing concern. “Downside risks to employment are rising. If realized, they could materialize quickly—through sharp layoffs and a notable rise in unemployment,” he warned. He also noted that GDP growth slowed significantly in the first half of the year, expanding at just 1.2%, nearly half the 2.5% pace seen in 2024, amid declining consumer spending.\n\nThese trends are pushing the Fed toward easing policy, as the economy appears to be cooling rather than overheating. However, inflation remains a complicating factor. “Near-term inflation risks are to the upside, while employment risks are to the downside—a challenging dynamic,” Powell summarized.\n\nShortly after his remarks, futures markets priced in an 89% chance of a rate cut by September. Yet uncertainty persists due to Powell’s emphasis on inflation control—the other pillar of the Fed’s dual mandate alongside employment. “We cannot take stable inflation expectations for granted. No matter what, we will not allow a temporary price spike to evolve into persistent inflation,” he stressed.\n\nWhile the Trump administration claims tariff hikes haven’t triggered inflationary chaos, Powell acknowledged they have raised prices on certain goods. He also warned they could erode workers’ purchasing power, potentially fueling wage demands that reignite inflationary pressures. “The full impact of tariff increases on supply chains and distribution networks will take time to unfold,” he noted.\n\nPowell’s appearance at Jackson Hole—likely his last as Fed Chair before his term ends in May 2026—was marked by tension. President Trump has repeatedly attacked Powell, recently calling for the resignation of Governor Lisa Cook over a mortgage controversy and threatening to fire her if she doesn’t step down. Though Powell avoided naming Trump, he defended the Fed’s independence: “FOMC members will base decisions solely on data and economic outlooks. We will not deviate from this approach.”\n\nThe Fed has held rates steady at 4.25%–4.50% since cutting by one percentage point, lagging behind the European Central Bank’s two-point reduction and even the Bank of England’s 1.25-point cut. However, recent labor data—only 73,000 jobs added in July, with prior months revised downward—has strengthened the case for easing at the September 17 meeting.\n\nThe inflation backdrop remains less than ideal. July’s headline rate stood at 2.7% (3.1% core), with producer prices posting their largest monthly jump in three years due to tariffs. Walmart recently warned that restocking tariff-affected goods is driving weekly cost increases, a trend expected to continue through Q3 and Q4.\n\nMinutes from the July FOMC meeting revealed most officials still view inflation risks as outweighing growth concerns, justifying no rate change. Yet dissenting voices within the Fed are growing, with some members arguing against waiting for full tariff impact assessments, fearing delays could be costly.\n\nThis inaction has drawn sharp criticism from Trump, who downplays tariff effects on price stability and views monetary policy as an underutilized tool for growth. He recently accused Powell of harming the housing market by keeping mortgage rates high, preventing Americans from securing home loans.\n— news from EL PAÍS\n\n— News Original —\nPowell abre la puerta a un recorte de tipos en septiembre por los riesgos económicos “cambiantes”\nThe president of the Federal Reserve, Jerome Powell, opened the door this Friday to an interest rate cut in September. “With monetary policy in restrictive territory, the overall landscape and changing balance of risks could justify an adjustment of our policy,” he said during his speech at the Jackson Hole (Wyoming) economic symposium. The message may seem cryptic, but in the calculated universe of central bank terminology, it leaves little doubt that the Fed intends to act after five meetings without doing so.\n\nMarkets reacted immediately. Lowering the cost of money reduces financing costs for households and businesses and tends to stimulate the economy, so stock markets reacted with strong gains, exceeding 1.5% in major U.S. indices, with the S&P 500 nearing historic highs, and close to 1% in European markets. Gold and bitcoin also appreciated. The dollar, on the other hand, responded with declines, exceeding one point against the euro, with which it trades at 1.17 greenbacks—a logical response when it is implied that the cost of money will be lowered.\n\nAt a moment of déjà vu with what happened in 2024, when he also used his Jackson Hole speech to hint at rate cuts upon returning from vacation, Powell pointed to the labor market as the source of concern that could tip the balance toward a rate reduction. “Downside risks to employment are increasing. And if these risks materialize, they could do so quickly, in the form of a sharp increase in layoffs and a rise in unemployment,” he warned. In addition, he recalled that GDP growth slowed significantly in the first part of the year, growing at a rate of 1.2%, almost half of 2024’s 2.5%, amid a drop in consumer spending.\n\nBoth phenomena are pressuring the Fed to remove burdens and allow more money to flow into the economy, which seems closer to cooling down than overheating, although with the background hum of tariff shocks on prices as an uncomfortable buzz. “In the short term, inflation risks are on the upside, and employment risks are on the downside—a challenging situation,” summarized Powell.\n\nShortly after he began speaking, the likelihood of a rate cut rose to 89% in the futures market that interprets the Fed’s next steps in monetary policy. If certainty is not yet absolute, it is due to the more orthodox side of his speech: he insisted that the fight against inflation and for price stability—the other leg of its dual mandate, alongside job creation—remains a priority. “We cannot take stable inflation expectations for granted. Whatever happens, we will not allow a temporary rise in price levels to become a persistent inflation problem,” he stated.\n\nWhile the Trump administration boasts that tariff hikes have not caused an inflation debacle, as many predicted, Powell blamed tariffs for raising prices on certain goods, did not rule out that they could cause workers to lose purchasing power, pushing them to demand higher wages—the dreaded inflationary vicious cycle—and in general, remained cautious. “It will take time for tariff increases to ripple through supply chains and distribution networks,” he emphasized.\n\nPowell’s last visit to Jackson Hole as Federal Reserve Chair—his term expires in May 2026—was marked by tension and uncertainty. First, because Trump’s shadow looms over the event following his repeated attacks on Powell and his team, just days after he called for the resignation of Governor Lisa Cook over a mortgage controversy—this Friday he said he would fire her if she does not resign. And second, because investors and analysts wondered if this year’s event would repeat last year’s script, when Powell confirmed the central bank’s first rate cut in over four years, which ultimately happened.\n\nNow, less time has passed since the last rate cut, which was in December, but for U.S. President Donald Trump, embroiled in a fierce campaign to discredit Powell for refusing to lower the cost of money, those eight months have felt very long. Powell, as expected, did not mention Trump in his speech, but did defend the independence of the bank—a stance only understandable under pressure from the White House. “FOMC members will make their decisions based solely on their assessment of data and its implications for economic prospects and the balance of risks. We will never deviate from this approach.”\n\nLagging Behind the ECB\n\nAfter cutting interest rates by one point, the Federal Reserve has kept them unchanged at 4.25%–4.50% during its last five meetings, falling far behind the European Central Bank’s two-point cut and even behind the Bank of England’s 1.25-point reduction. But the cooling of the labor market shown in recent statistics, with only 73,000 jobs created in July and downward revisions to hiring in the previous two months, has been decisive in prompting Powell to open the door to a cut at the September 17 meeting.\n\nThe scenario for doing so is not ideal, especially on the inflation front, which closed July at 2.7% (3.1% core), and does not yet appear to be under control, with producer prices experiencing their largest increase in three years last month due to tariffs. Walmart, the global distribution giant, warned in its earnings report this Thursday that as it replenishes inventory and purchases tariff-affected products, costs are rising every week, a trend they expect to continue through the third and fourth quarters.\n\nMinutes from the last meeting of the Federal Open Market Committee (FOMC), held in July, revealed this Wednesday that for most governors, inflation risk is more pressing than growth risks, justifying the decision to keep rates unchanged. But dissenting voices within the Fed have not stopped growing, and some members made it clear they do not want to wait to assess the exact impact of tariffs before starting to cut rates, as it could be too late.\n\nThis paralysis has triggered Trump’s fury toward the institution. The U.S. president downplays the effects of tariffs on price stability and sees monetary policy as a tool to stimulate the economy that is not being deployed as it should. And instead of boosting growth, he believes it is hindering it. Just this week, he accused Powell of damaging the housing market by preventing people from signing mortgages due to high interest rates.
