Federal Reserve Chair Jerome Powell indicated on August 22, 2025, that the Federal Open Market Committee (FOMC) may adjust interest rates in response to a shifting economic landscape. Powell described the current labor market as a "curious kind of balance," characterized by a noticeable slowdown in both the supply of and demand for workers. This dynamic suggests rising downside risks for employment, a concern that could influence future monetary policy decisions.
Powell's remarks, delivered at the Jackson Hole Economic Policy Symposium, highlighted that recent July employment data revealed significantly weaker job growth than initially reported. Payroll gains averaged 35,000 per month over the past three months, a sharp decrease from the 168,000 per month average in 2024. The unemployment rate in July 2025 was 4.2%, a slight increase from the previous month. This cooling labor market, evidenced by revised job growth figures, supports a cautious approach to monetary policy.
Furthermore, Powell addressed the inflationary impact of tariffs, noting that they have begun to push up prices in certain goods categories. Total Personal Consumption Expenditures (PCE) prices rose 2.6 percent over the 12 months ending in July, and core PCE prices increased by 2.9 percent, both remaining above the Federal Reserve's 2 percent target. Powell acknowledged the potential for tariffs to spur a more lasting inflation dynamic, stating that while the effects might be a "one-time shift in the price level," they could also "spurt a more lasting inflation dynamic."
In the wake of Powell's statements, financial markets responded positively. The S&P 500 and Nasdaq experienced gains, while the Dow Jones Industrial Average surged, breaking previous records. This market reaction reflects investor anticipation of a potential interest rate cut at the upcoming FOMC meeting scheduled for September 16-17, 2025. Market expectations, as indicated by futures trading, suggest a high probability of a 25-basis-point rate cut at this meeting.
The Federal Reserve's dual mandate of maximum employment and price stability remains central to these considerations. Policymakers are carefully evaluating incoming data to inform their decisions, with the slowdown in GDP growth to a 1.2 percent pace in the first half of 2025, down from 2.5 percent in 2024, underscoring a broader economic deceleration largely attributed to a slowdown in consumer spending.