Federal Reserve could lower rates as job market loses steam, Powell says

Jerome Powell, the chair of the Federal Reserve, warned that new job data suggests the U.S. economy may be slowing and hinted that interest rates may start to decline once more.

Powell clarified Friday that the Fed has been cautious about lowering rates when addressing a sizable assembly of investors and Federal Reserve Board members in Jackson Hole, Wyoming.

Powell pointed out that while decreasing interest rates can contribute to the expansion of jobs, they can also increase inflation.

The Fed raised the federal interest rate for the first time in 2022 after the annual inflation rate jumped to 9%. Because job growth was strong and unemployment was low, the central bank was able to accomplish this.

Even while inflation is still higher than the Fed’s 2% target, recent job data indicate that hiring in the US economy is slowing.

It’s a difficult scenario, Powell remarked, with inflation risks skewed upward and employment risks skewed downward.

Powell added that the imposition of new levies on imported goods may result in higher inflation. Nonetheless, he stated that the employment-price stability risk balance seems to be shifting due to declining job numbers.

Interest rates cannot be raised or lowered by Powell alone. Two members dissented from the Fed’s vote to maintain rates at its most recent meeting in late July, which was the first time in 30 years that two votes were cast against the same decision.

Following two 25 basis point rate cuts later that year, the Fed lowered rates by 50 basis points in September 2024, bringing them down from a 23-year high.

The Fed hasn’t changed interest rates since President Donald Trump took office in January 2025, which has infuriated Trump, who claims that high interest rates are harming the economy. Powell has retorted that high inflation and a steady labor market continue to justify the rates.