Federal Reserve Chair Jerome Powell signaled that interest rate cuts may be on the horizon as the U.S. labor market shows signs of cooling. At the Kansas City Fed’s annual conference, Powell warned that inflation pressures remain strong, creating a difficult balance for policymakers.
Recent employment data showed only 73,000 new jobs in July, along with revisions erasing more than 250,000 earlier gains. Meanwhile, core consumer prices climbed 3.1% year-over-year, with tariffs driving up costs for businesses and consumers alike.
Markets rallied on hopes of lower rates, with major stock indexes closing at record highs. Still, Powell stressed that the Fed must proceed “carefully” and will act based on incoming data, not political pressure.
Fed officials remain divided: some worry about stubborn inflation, while others see room for cuts if the labor market weakens further. Powell also noted that the “neutral” interest rate — the level where policy neither boosts nor restrains growth — may now be higher than in the past, suggesting limited scope for aggressive cuts.
With the next Fed meeting in September, all eyes are on whether Powell and his colleagues will begin adjusting rates as the U.S. economy faces both slowing growth and persistent price risks.
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