Powell opens door to Fed rate cut
In his speech at the central bank conference in Jackson Hole today, Fed Chair Powell signaled that interest rates could be lowered soon.
Commerzbank Economic Research
08/22/2025
A year ago, Fed Chair Powell practically announced a policy shift towards lower interest rates in Jackson Hole, which the US central bank then implemented with interest rate cuts in September (by 50 basis points), October (25) and December (25). Since then, it has kept interest rates unchanged.
Today, Powell also signaled a possible change of course at the same event, albeit in a more nuanced manner than last year. The difference is that a year ago, core inflation was on a downward trend and the unemployment rate was on an upward trend. At present, the situation is much more complex.
Powell noted that the risks to inflation (due to tariffs) are skewed to the upside and the risks to employment are skewed to the downside – a “challenging situation.”
Powell also pointed out that the downside risks to the economy are increasing. With regard to tariffs, he said it was a “reasonable base case” that they would cause a one-time jump in the level of prices, meaning their impact on inflation would be temporary. However, it could also be possible that they permanently increase inflationary pressure and raise inflation expectations. Given that he regards the labor market as not particularly tight and exposed to increasing downside risks, Powell considers this outcome unlikely, however.
For full text see attached PDF-Version.
