Zürcher Nachrichten - US Fed chair leaves door open to rate cut, facing down Trump pressure

Last year, the central bank chair used his keynote speech at the Jackson Hole Economic Policy Symposium to indicate the time had come for interest rate cuts. This time, however, the picture is murkier.

He faces constant attacks from President Donald Trump -- who is aggressively pushing the independent bank for interest rate cuts -- alongside mixed economic data leading him to take a more cautious approach.

"Downside risks to employment are rising," Powell said in his speech, warning that these challenges could materialize quickly in the form of layoffs.

"While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers," he noted.

He added that "the effects of tariffs on consumer prices are now clearly visible" and expected to accumulate over the coming months.

There is high uncertainty, he believes, about the timing and amounts of the tariffs' effects.

But he vowed: "We will not allow a one-time increase in the price level to become an ongoing inflation problem."

"With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," Powell said.

This marks his final Jackson Hole speech at the helm of the Fed, with his term as Fed chair ending in May 2026.

- 'Tough position' -

"The Fed is in a tough position as inflation remains above target and downside risks to the labor market are intensifying," said Ryan Sweet, chief US economist at Oxford Economics.

"Whether they cut or not in September will likely hinge on data that Powell won't have in hand" at the symposium, Sweet told AFP ahead of Powell's remarks.

Yet the Fed has come under intensifying pressure from the Trump administration this year.

Trump has made no secret of his disdain for Powell, repeatedly saying that the Fed chair has been "too late" in lowering interest rates while calling him a "numbskull" and "moron."

The president has also taken aim at Powell over the Fed's headquarters renovation in Washington, suggesting that cost overruns could be cause for ousting the central banker.

Trump eventually backed off the idea but this week separately called for the resignation of a Fed governor, Lisa Cook, over claims of mortgage fraud.

- Jobs, inflation risks -

The Fed, which holds its next policy meeting in mid-September, has kept interest rates steady at a range of between 4.25 percent and 4.50 percent since its last reduction in December.

In keeping rates unchanged, policymakers cited resilience in the labor market as they monitored the effects of Trump's wide-ranging tariffs on the world's biggest economy.

Higher tariffs on imports risk fueling price hikes, according to analysts. The Fed typically keeps interest rates at a higher level to sustainably rein in inflation.

The Fed's preferred inflation gauge rose 2.6 percent in June from a year ago, and a measure stripping out the volatile food and energy segments was higher at 2.8 percent. Both figures are above the Fed's longer-term target of two percent.

But cracks have meanwhile emerged in the jobs market, which could call for lower rates to boost the economy.

Official employment data released this month showed that hiring in May and June was much weaker than originally estimated.

Softening employment has raised concern among officials, with Fed governors Christopher Waller and Michelle Bowman voting against the overall decision in July to hold rates steady for a fifth straight meeting.

Both had preferred to lower interest rates by 25 basis points. It was the first time since 1993 that two Fed governors dissented.

For now, CME Group's FedWatch Tool shows the market sees a 75.6-percent chance that the Fed will lower rates in September.

"With more employment data to come, we don't think Powell can firmly guide toward easing at the next meeting," JPMorgan analysts said in a recent note.

L.Muratori--NZN