Fed Chair Powell Opens Door to September Rate Cut at Jackson Hole — Evening Brief – 08.22.25  

Federal Reserve Chair Jerome Powell used his Jackson Hole address to signal a potential interest rate reduction as soon as September, positioning himself closer to the more dovish wing (Christopher Waller and Michelle Bowman) of the FOMC and reframing the narrative from “higher for longer” to “easing on the horizon.” 

While careful not to pre-commit, Powell underscored that monetary policy is now “restrictive” and highlighted a cooling in labor demand and supply as well as tariff-related price pressures that, in his view, may prove transitory. This marked a more dovish tilt relative to earlier messaging that had emphasized inflation risks, suggesting Powell is increasingly open to the idea that downside risks to employment are becoming more salient. 

Powell acknowledged that the balance of risks is shifting. While inflation remains above target, the drag from tariffs, higher borrowing costs, and slowing labor market dynamics may call for preemptive action to avoid a deeper downturn. He also noted that much of the recent uptick in inflation was tied to tariffs and supply-side adjustments, not a resurgence in underlying demand, implying that patience could allow these effects to wash out. 

“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” Powell said at the Kansas City’s Fed Central Bank Symposium at Jackson Hole, Wyoming. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” 

Powell’s remarks came amid growing pressure from the Trump administration, which has escalated attacks on Fed officials and pushed for faster rate cuts. Powell did not address politics directly, but his tone suggested an effort to maintain the Fed’s independence while acknowledging that risks to growth are mounting. 

Markets responded swiftly. U.S. equities rallied on the news, with the S&P 500 climbing 1.6%, the Dow up 2.1%, and the Nasdaq advancing 1.9% intraday, as investors bet on lower policy rates. In fixed income, the 10-year Treasury yield dropped to 4.26% and the 2-year yield fell to 3.71%, reflecting expectations of a rate cut. Futures markets quickly repriced, assigning a 92% probability of a 25 basis-point cut at the September 17–18 FOMC meeting, contingent on incoming August employment and inflation data.