Dovish Powell hints at more rate cuts in US
The Federal Reserve is likely to cut US interest rates at its next decision in September, Jay Powell has said, despite the country’s softening labour market being in conflict with upward pressure in prices from Donald Trump’s tariffs.
In an eagerly anticipated address at the Jackson Hole symposium, the Fed chair highlighted slower economic growth, lower consumer spending and slack appearing in the jobs market as all contributing to a more dovish approach being required for US monetary policy.
But he also warned that signs of inflation were becoming increasingly evident in US goods, because the swingeing tariffs unleashed on the global economy by Donald Trump were beginning “to push up prices in some categories”.
“Risks to inflation are titled to the upside and risks to employment to the downside; a challenging situation,” Powell told delegates. “When our goals to inflation our in tension like this, our framework calls for us to balance both sides of our dual mandate.”
He added: “With policy policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Powell’s comments are his most dovish since the Federal Reserve first started raising interest rates in February 2022.
They sent US equities soaring, with the S&P 500 and tech-heavy Nasdaq jumping as much as 1.5 per cent and 1.9 per cent respectively in the immediate aftermath of the Fed chair’s address.
Powell doubles down on Fed independence
With the Federal Reserve coming under increasing pressure from a Trump administration eager to see faster interest rate cuts, Powell’s address at the central banking jamboree was one of the most keenly awaited in recent history.
The US President has unleashed a series of salvos aimed at the head of the Fed, to whom he has given the nickname ‘Too Late’ for not lowering the cost of borrowing sooner.
Trump has threatened to dislodge Powell as the US’s most senior central banker before his term is up next year, despite it being in conflict with the US constitution.
But Powell – whom Trump appointed during his first time and who comes from a Republican background – reaffirmed his commitment to the Federal Reserve’s independence, arguing its board would always be led by data on the US economy.
“Monetary policy is not on a preset course,” he said. “FOMC [the Federam Open Market Committee] will make these decisions solely on their assessment of the data and its implications for the economic outlook and the balance of risks.
“We will never deviate from that approach.”