Powell hints at September rate cut, sending Dow up 650 points

Federal Reserve Chair Jerome Powell warned of rising stagflation risks — but hinted at a possible interest rate cut in September during his last keynote address at the central bank’s annual Jackson Hole gathering.

In prepared remarks, he nodded to “sweeping changes” in tax, trade and immigration policies, noting that “the balance of risks appear to be shifting” between the Fed’s goals of maximum employment and stable prices.

Powell said the economy and labor market in particular remain resilient, but that downside risks – like tariffs heating up inflation – are on the rise.

Still, current economic conditions allow “us to proceed carefully as we consider changes to our policy stance,” Powell said.

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added.

That served as a signal that Powell is open to lowering rates in the fall, sending the Dow Jones Industrial Average soaring 679 points, or 1.5%, by approximately 10:10 a.m. ET.

Traders priced in about a 75% chance of the Fed issuing a quarter-point cut in September soon after Powell’s speech started – a more than 5% jump from earlier in the day, according to CME FedWatch.

The central bank has held interest rates in the target 4.25% to 4.5% range since December.

Powell also snuck in some remarks on the central bank’s attempt to preserve its independence amid a battle with President Trump.

“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach,” the chairman said.

Trump has been doggedly pushing the Fed to slash interest rates, calling for them to come down by as much as 3 percentage points as he blasted Powell as “stupid” and “hardheaded.”

The president has backed off the idea of replacing Powell, though he has gone after the Fed’s $2.5 billion headquarter renovations, visiting the construction site donned in a hard hat as he questioned the project’s final cost.

This week, the Department of Justice reportedly launched an investigation into Fed Governor Lisa Cook over alleged mortgage fraud just one day after Trump urged the Biden appointee to resign.

The Trump administration has argued that tariffs will not cause long-term inflation, and Powell seemingly agreed, saying that a “reasonable base case” is that tariff impacts will be “short lived – a one-time shift in the price level.”

However, he said it “will continue to take time for tariff increases to work their way through supply chains and distribution networks.” 

“Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”