Powell Hints at Possible September Fed Rate Cut

Federal Reserve Chair Jerome Powell signaled at the Jackson Hole symposium that the U.S. central bank may be prepared to cut interest rates as soon as September. Powell highlighted signs of a weakening labor market, noting that both supply and demand for workers have slowed significantly. While the Fed has held rates steady for much of 2025 due to tariff-driven inflation pressures, Powell acknowledged that “the balance of risks appears to be shifting,” pointing to a potential adjustment in policy if labor conditions deteriorate further.

Markets React to Powell’s Speech

Markets reacted positively to Powell’s remarks, with investors interpreting his comments as confirmation of rising expectations for a September rate cut. However, Powell tempered speculation of aggressive easing by reiterating concerns about inflation, which has remained above the Fed’s 2% target for more than four years. He suggested that tariffs have clearly pushed consumer prices higher, but also noted his expectation that many of these effects could be temporary. The Fed’s current benchmark rate of around 4.3% remains restrictive, but Powell emphasized the need for caution and data dependency in future decisions.

Political Pressure and Fed Independence

The political backdrop further complicates the Fed’s path. The Trump administration has maintained intense pressure on Powell, criticizing the pace of monetary easing and threatening leadership changes within the central bank. Powell, however, reaffirmed that Fed policy is independent of politics and strictly focused on inflation and employment. With global peers and leading economists in attendance, Powell insisted that while short-term inflation risks remain, the Fed’s primary challenge is balancing those risks against rising unemployment pressures. This delicate tradeoff has set the stage for what could be a pivotal rate decision in September.

Opinion: How Likely Is a Fed Rate Cut—and by How Much?

Depending on the data and market pricing, the consensus is coalescing around a 25 basis point (0.25%) rate cut in September. Futures markets, particularly the CME FedWatch Tool, currently indicate an approximately 75% to 87% probability of such a cut. For instance, Phemex reports a 87.2% chance, pricing in a move that would bring the federal funds rate down to around 4.00%–4.25%. Similarly, earlier estimates using CME data suggested roughly a 75% probability for a 25 bp cut.