During a highly anticipated speech at the Jackson Hole Economic Symposium, Federal Reserve Chair Jerome Powell indicated that the central bank might start cutting interest rates as early as September. With inflation moderating and labor market indicators weakening, Powell stated that the current restrictive monetary policy “may warrant adjustment” if the economy remains soft.

Powell emphasised that while inflation is still above the Fed’s 2% target, the more urgent concern is the slowdown in job growth and overall economic momentum. Recent data shows a significant drop in monthly job creation compared to last year’s pace, prompting the Fed to reconsider its stance.

The Fed’s current policy framework, which was introduced in 2020 to allow for temporary inflation overshoots, is also under review. Powell acknowledged that changing economic conditions might require a new approach to balance the Fed’s dual mandate of controlling inflation and promoting maximum employment.
In a politically charged environment leading up to the U.S. presidential election, Powell also strongly defended the central bank’s independence. Amid criticism and pressure from figures like President Donald Trump, Powell clearly stated that the Fed will continue to base its decisions solely on economic data and its dual mandate.

The markets reacted positively to the speech. Equities rallied, Treasury yields fell, and the U.S. dollar weakened. Traders are now widely anticipating a 25-basis-point rate cut at the Fed’s next meeting. Powell’s position was supported by other global central bankers, including European Central Bank President Christine Lagarde, who emphasised the importance of maintaining central bank independence during uncertain times.