Federal Reserve Chair Jerome Powell signaled that an interest-rate cut could become appropriate, but he did not announce a cut or give a date. In his August 22, 2025 Jackson Hole speech, he said the economic outlook and shifting balance of risks “may warrant adjusting our policy stance.” He stressed that policy was not on a preset course and that future decisions would depend on incoming data and its implications for the outlook and risks. Read Powell’s speech.
What did Powell say at Jackson Hole?
Powell’s central message was conditional: with monetary policy still restrictive, changing risks could justify adjusting it. The phrase “may warrant” left the decision open. It was not a commitment to lower rates, a forecast of when a cut would happen, or a statement that the Federal Open Market Committee (FOMC) had already decided.
Powell put the limit plainly: “Monetary policy is not on a preset course.” He said FOMC members would decide “based solely on their assessment of the data and its implications for the economic outlook and the balance of risks.” The speech therefore described a possible policy response, not a rate decision.
Why did he raise the possibility of an adjustment?
Powell described two risks pulling in different directions under the Fed’s dual mandate of stable prices and maximum employment: inflation risks were tilted upward, while employment risks were tilted downward. He said the framework calls for balancing both when the goals are in tension.
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Employment risks were rising
Powell characterized the labor market as near balance, but noted that both labor supply and demand were slowing. In his account, payroll growth had weakened more than the Fed had assessed a month earlier, even as unemployment remained historically low and other indicators had changed little or softened only modestly. He warned that this unusual balance could shift quickly: layoffs and rising unemployment could make downside employment risks materialize faster than gradual data might suggest.
To describe conditions as they stood when he delivered the speech, Powell cited average payroll growth of 35,000 jobs per month over the three months covered by the July 2025 employment report, compared with 168,000 per month in 2024. He also cited a July 2025 unemployment rate of 4.2 percent. These are figures from his August 2025 remarks, not current readings.
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Inflation risks remained, especially from tariffs
Powell said inflation had moved up from earlier in 2025 and that tariff effects were becoming visible in some goods prices. “The effects of tariffs on consumer prices are now clearly visible,” he said. He expected those effects to accumulate over the coming months, but said their timing and size were uncertain.
His base case was that tariffs would produce a relatively short-lived, one-time rise in the price level. He also acknowledged a risk that the price pressure could persist or feed into wages and inflation expectations. Powell cited total personal consumption expenditures (PCE) inflation of 2.6 percent and core PCE inflation of 2.9 percent over the 12 months ending July 2025. Those, too, are the figures he reported in the speech, not an update to present-day inflation.
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The economy was slowing, while policy remained restrictive
Powell said GDP grew at a 1.2 percent pace in the first half of 2025, down from a 2.5 percent pace in 2024. He also noted that the policy rate was 100 basis points closer to neutral than it had been a year earlier. In context, his point was that policy was still restrictive, but the balance of risks had changed enough that an adjustment could be considered. He said labor-market stability allowed the Fed to proceed carefully rather than act automatically.
What did “may warrant adjusting our policy stance” mean?
It meant Powell saw circumstances in which a change to policy could be justified, not that a particular rate cut was certain. The qualification matters: the Fed would weigh new data, its outlook, and the balance between inflation and employment risks before deciding. A softer labor market could strengthen the case for easing, while persistent inflation could argue for caution.
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The speech did not give a schedule or specify the size of any possible adjustment. Readers should not treat the statement as a promise that borrowing costs would fall by a particular amount or on a particular date.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What else changed in the speech: the Fed’s framework review
A substantial part of Powell’s address covered the Fed’s second public review of its monetary policy framework. The review resulted in a revised Statement on Longer-Run Goals and Monetary Policy Strategy. Powell said the Fed would continue reviewing the framework roughly every five years and retain its longer-run inflation goal of 2 percent.
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The revisions he described included:
- Removing language that treated the effective lower bound on interest rates as a defining feature of the economic landscape.
- Returning to flexible inflation targeting and ending the “makeup” strategy, under which the Fed had sought to make up for periods of inflation below its target.
- Replacing “shortfalls” language in the discussion of employment.
- Clarifying that the Fed takes a balanced approach when its employment and inflation objectives are in tension and do not move together.
Powell placed these changes in the context of the Fed’s experience after the 2008 global financial crisis, when its policy rate remained at the effective lower bound for seven years. The framework discussion concerned how the Fed describes and approaches policy over time; it was separate from the immediate question of whether economic conditions might justify an adjustment.
Quick Recap
How to read the speech without treating it as a rate announcement
- Signal: Powell said the outlook and risks could make an adjustment appropriate.
- Not a commitment: He did not announce a cut, set a date, or say the FOMC had decided.
- Competing pressures: Inflation risks were tilted upward, while employment risks were tilted downward.
- Decision rule: Future policy would depend on data, the outlook, and the balance of risks—not a preset path.
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