The Federal Reserve is gearing up to resume cuts to interest rates, its chair, Jerome Powell has signaled, as he warned Donald Trump’s tariffs and immigration crackdown had roiled the global economy and hit the US workforce.
For months, Powell has ignored demands from the president to cut interest rates and defied the US president’s calls to resign. But as Trump ramps up his extraordinary attack on the Fed’s independence, Powell suggested on Friday that Fed officials are considering a rate cut.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said in a closely scrutinized speech at the Jackson Hole symposium in Wyoming on Friday, highlighting a “challenging” dichotomy of risks: that Trump’s tariffs might increase inflation, while his immigration policies knock the US labor market.
Wall Street rose sharply after the address, with the benchmark S&P 500 gaining 1.6% as the Dow Jones industrial average climbed 1.9%. The tech-focused Nasdaq Composite reversed days to advance 2.1%.
Trump, meanwhile, continues to encroach on the Fed’s independence and demand that it rapidly cuts rates. The president called on a Fed governor, Lisa Cook, to resign after one of his allies, the US Federal Housing Finance Agency head, Bill Pulte, alleged that she had committed mortgage fraud.
After Cook said she had “no intention of being bullied” into stepping down, Trump told reporters in Washington on Friday: “I’ll fire her if she doesn’t resign.”
Since Trump started his second term and overhauled America’s trade system, Powell – who is usually reserved about making direct comments on executive branch policies – has been more outspoken about the impact of Trump’s tariffs.
“This year, the economy has faced new challenges. Significantly higher tariffs across our trading partners are remaking the global system,” Powell said in his speech on Friday. “Tighter immigration policy has led to an abrupt slowdown in labor force growth.”
Changes to tax, spending and regulation may also affect the economy, Powell added, tacitly underlining the erratic nature of government by Trump. “There is significant uncertainty about where all of these policies will eventually settle and what their lasting effects on the economy will be,” he said.
Recent government data shows that US labor growth stalled this summer. While new jobs are still being added to the economy each month, Powell noted that it was “a curious kind of balance” where both the supply and demand for workers have been slowing.
“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,” he said.
Cutting rates could help boost the labor market, but it can also make inflation worse. Powell pointed out that Trump’s tariffs have “begun to push prices up in some categories of goods”.
“The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” Powell said.
It is unclear whether tariffs will cause lasting inflation, meaning prices will continue to go up at higher paces, or if it will mean a one-time shift in the price level.
a interactive graph of interest rate cuts from August 2019 to July 2025
At five consecutive meetings, the Fed has left rates unchanged, despite the president’s calls for rapid cuts. Before moving, most policymakers wanted more clarity on the economic impact of his policies, including sweeping tariffs on imports, and deportations.
At the Fed’s last meeting, in July, where it again opted to leave its benchmark interest rate unchanged, two governors opposed the decision – the first time multiple governors have voted against the majority since 1993.
After the meeting, official employment data showed that jobs growth stalled this summer – prompting Trump to fire the federal official in charge of labor statistics – as inflation continued to rise.
A parade of those aspiring to replace Powell next year – believed to include the two governors who called for rate cuts at the last Fed meeting, Christopher Waller and Michelle Bowman, and Kevin Hassett, the director of Trump’s national economic council – will be interviewed in the coming weeks.
