Jerome Powell hints at possible interest rate cuts amid economic concerns & tariffs; Fed Chair’s speech highlights here

Jerome Powell gave a slight hint of possible interest rate cuts in the future as he warned about a gloomier economic outlook, in part due to tariffs, CNN reported. The Federal Reserve Chief talked about the matter in his annual address at Jackson Hole, Wyoming.

U.S. Federal Reserve Chair Jerome Powell hinted at a possible rate cut.(REUTERS)

According to a CNBC report, this was as close as Powell came during the speech to endorse a rate cut. The outlet added that Wall Street widely believes an announcement on the matter will come when the Federal Open Market Committee meets on September 16-17.

Powell cited “sweeping changes” in trade, tax and immigration policies and stated that “the balance of risks appear to be shifting” between the Fed’s twin goals of stable prices and full employment.

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Jerome Powell speech: Key announcements and highlights

Powell noted the “resilience” of the economy, adding that the labor market remains in good shape. However, he cautioned that downside dangers were on the rise. Powell mentioned that tariffs are leading to risks that are pushing up inflation, a stagflation scenario that the Federal Reserve wants to avoid.

Compared to the scenario when Powell delivered his speech last year, the Fed’s benchmark interest rate is down by a full percentage point. While the unemployment rate is still low, conditions allow “us to proceed carefully as we consider changes to our policy stance,” Powell added.

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he explained.

In his remarks, Powell also highlighted the importance of Fed independence. “FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach,” he asserted. The remarks come amid Donald Trump’s aggressive demand for rate cuts.

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Here’s how markets reacted to Jerome Powell’s speech

As per CNN, bonds rallied and Treasury yields fell sharply on Friday as traders reacted to Powell’s remarks.

The yield on 2-year, 10-year and 30-year Treasury bonds fell as investors snapped up the debt instruments to lock in high rates ahead of a potential rate cut in September. The markets rose, with Dow recording a jump of 1.5 per cent. The broader S&P 500 rose 1.3 per cent, while Nasdaq Composite gained 1.35 per cent.

While the potential rate cut is a response to slowing growth in the labor market, the stock market recorded growth on the prospect of lower borrowing costs, the outlet said. The jobs report in July indicated that employment gains have slowed much more than previously thought. Despite tepid job growth, the unemployment rate remained relatively low last month.