The Federal Reserve signaled a possible interest-rate cut at the next meeting due to shifting economic risks. Labor market indicators show a marked slowing in both the supply of and demand for workers. Rising risks include sharply higher layoffs and increasing unemployment, prompting consideration of policy change. Previous resistance to rate cuts emphasized a healthy labor market and inflation uncertainty, with concerns that cuts could fuel inflation and be unnecessary given low unemployment. The current assessment balances these earlier concerns against emerging signs of labor-market weakening and the potential need to adjust monetary policy.
Federal Reserve Chair Jerome Powell seemed to suggest on Friday that the Fed could cut interest rates when the central bank meets next month. Speaking at the Jackson Hole Economic Symposium, an annual conference, Powell said "the balance of risks appear to be shifting" in the economy. Powell has resisted pressure from the Trump administration to cut interest rates, citing a healthy labor market and uncertainty about inflation.
There were concerns that a rate cut would both fuel inflation and be unnecessary given low unemployment. However, in his Jackson Hole address, Powell pointed to a "marked slowing in both the supply of and demand for workers." He highlighted risks, namely, "sharply higher layoffs and rising unemployment," and he said a change of policy may be warranted. Powell's address to the conference was his seventh and final as Fed chairman, as his term ends next May.
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