Jerome Powell, the Chair of the US Federal Reserve, has recently hinted at the possibility of a rate cut soon, potentially as early as the central bank's September meeting. This comes even as the US economy continues to grapple with inflation risks, creating a complex situation for the Fed.

In a recent speech at the Jackson Hole Economic Policy Symposium, Powell acknowledged the challenges of balancing the Fed's dual mandate of maintaining price stability and full employment. He noted that while the labor market appears to be in balance, this balance is "a curious kind of balance that results from a marked slowing in both the supply of and demand for workers". This unusual situation, according to Powell, suggests that downside risks to employment are rising, and could quickly materialize as higher layoffs and rising unemployment.

Powell also pointed out that GDP growth has slowed in the first half of the year, reaching a pace of only 1.2%, which is roughly half the 2.5% pace seen in 2024. This decline in growth largely reflects a slowdown in consumer spending, mirroring the trends observed in the labor market.

Despite these concerns about economic growth and employment, Powell emphasized that risks to inflation remain tilted to the upside. He noted that the effects of tariffs on consumer prices are now clearly visible and are expected to accumulate in the coming months. However, there is still significant uncertainty about whether these tariffs will cause lasting inflation or merely a one-time shift in the price level.

Powell stressed that the Fed's monetary policy is not on a preset course and that decisions will be based solely on the assessment of incoming data and its implications for the economic outlook and the balance of risks. He reiterated that the Fed will never deviate from this approach.

The possibility of a rate cut has been met with mixed reactions. Financial markets have largely welcomed the signal, with the S&P 500 index rising 1.6% in midday trading following Powell's remarks. However, some analysts remain cautious, pointing out that the Fed is in a difficult position, as cutting rates to boost hiring could also worsen inflation.

President Trump has been a vocal critic of the Fed's policies, repeatedly urging Powell to cut rates and accusing him of being "too late". Powell's recent comments come amid this backdrop of unprecedented public scrutiny from the White House.

Powell's term as Fed chair concludes in May 2026. The Federal Reserve is scheduled to convene its next policy meeting in mid-September. Since their last decrease in December, the interest rates have been maintained between 4.25 percent and 4.50 percent.