Powell signals a possible interest rate cut

The Federal Reserve chairman says labor market risks are rising amid inflation worries.

- BY AMARA OMEOKWE AND JONNELLE MARTE

FED CHAIR Jerome Powell, right, and foreign bank officials Friday in Wyoming.

Federal Reserve Chair Jerome Powell carefully opened the door to an interest rate cut in September, pointing to rising risks for the labor market even as worries over inflation remain.

“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyo., on Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

After Powell's remarks, investors boosted bets that the Federal Open Market Committee would cut rates at its Sept. 16-17 meeting.

“He used the speech to solidify expectations for 25 basis points in September,” James Bullard, former president of the St. Louis Fed, said in an interview on Bloomberg Television. “He leaned into the most recent labor market report, which was very soft. And so I think that’s a done deal.”

The signal comes at a time when Fed officials are divided over how and when to adjust policy in the coming months. Some have pointed to the labor market’s resilience. Others warn that nascent signs of weakness in employment could metastasize into a more significant downturn.

Powell said the labor market is in a “curious kind of balance” resulting from a marked slowdown in both the supply of and demand for workers. He cited employment data for July, which showed jobs growth in recent months was substantially weaker than previously reported.

“This unusual situation suggests that downside risks to employment are rising,” he said. “If those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”