Federal Reserve Chair Jerome H. Powell hinted that the central bank might cut interest rates in September.
Powell spoke on Friday at an event titled “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” an economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming.
He said that higher tariffs and a tighter immigration policy have slowed labor force growth and gross domestic product, which is a measure of economic activity using final goods and services produced in the U.S.
“There is significant uncertainty about where all of these polices will eventually settle and what their lasting effects on the economy will be,” he said.
The Federal Reserve is a central bank with 12 locations that sets interest rates and manages monetary policy, meaning that it can print or destroy money.
President Trump has pushed Powell to cut interest rates. On Tuesday, he said that Jerome "Too Late" Powell is hurting the housing industry because of high interest rates.
Lower interest rates make buying expensive items like homes and vehicles cheaper when financed over time.
The Federal Reserve printed trillions of dollars during the COVID-19 pandemic that likely triggered a wave of inflation witnessed through higher energy and grocery prices.
Inflation spiked to a 40-year high at 9.1% in 2022, according to the U.S. Bureau of Labor Statistics.
"Of course, we cannot take the stability of inflation expectations for granted," Powell said. "Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem."
The Federal Reserve has a dual mandate. It must promote maximum unemployment, stable prices, and moderate long-term interest rates.
“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. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Here is Jerome Powell's full speech today at Jackson Hole where he became "dovish" and said the "time has come" to cut interest rates. pic.twitter.com/tyEuNSy0tV
— unusual_whales (@unusual_whales) August 23, 2024
Powell alone can't cut interest rates. The Federal Open Market Committee can. The group is staffed by the members of the Board of Governors; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents who serve one-year terms on a rotating basis.
Tariffs slowed the economy but they’re also projected to cut the deficit by $4 trillion by from 2025-2035, the Congressional Budget Office projected on Friday.
The Federal Open Market Committee is scheduled to meet next on September 16-17.