United States Federal Reserve Chair Jerome Powell buoyed financial markets by providing a strong indication that interest rates may be cut next month.
In a speech on Friday (Saturday AEST), Powell opened the door to the central bank’s first rate cut of President Donald Trump’s second term, but he was also careful to address the risks of easing monetary policy.
The U.S. stock market rose while U.S. bond yields and the U.S. dollar fell in the wake of his closely-watched address to the Fed’s annual symposium.
"The stability of the unemployment rate and other labour market measures allows us to proceed carefully as we consider changes to our policy stance," Powell said in his speech titled Monetary Policy and the Fed’s Framework Review.
"Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."
He was speaking at the Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy economic symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming.
Powell said the labour market appeared to be in a “curious kind of balance” resulting from a marked slowing in the supply of and demand for workers, which suggested downside risks to employment were rising and could do so quickly.
"It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed," the Fed Chair told his audience.
His comments raised expectations that the Fed would lower its policy rate by 25 basis points at its meeting on 16 and 17 September and by a similar amount later in 2025, but monthly employment and inflation data in the meantime will be closely analysed.
Trump responded by maintaining his criticism of Powell, saying the Fed should slash rates immediately because there is no risk of inflation.
“The damage he has done by always being Too Late is incalculable,” he wrote in a post on Truth Social.
U.S. stocks surged with the Dow Jones Industrial Average adding more than 600 points, U.S. two-year Treasury note yields fell 0.08% and the dollar also dropped.
