While he refrained from outright endorsing a cut in borrowing costs at the Fed’s forthcoming meeting in September, his emphasis on the potential for economic weakening suggested that a reduction is likely on the horizon.
According to RedState, Powell, in his concluding speech as Fed chair at the annual conference hosted by the Reserve Bank of Kansas City, stated, “The balance of risks appears to be shifting.” He noted that with borrowing costs burdening the economy, a softening labor market, and contained inflation risks, “the shifting balance of risks may warrant adjusting our policy stance.”
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Powell, who is set to conclude his tenure as the Fed chairman next year, though his term as a governor of the Fed extends until 2028, also shared other insightful observations.
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He drew attention to the recent deceleration in monthly jobs growth, questioning whether it was due to a decrease in demand from companies or a reduction in the supply of workers, a potential consequence of President Trump’s immigration crackdown. This, he said, has left the labor market in a “curious kind of balance” that necessitates caution.
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“This unusual situation suggests that downside risks to employment are rising,” he said. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."
While Powell acknowledged that inflation was still too high, he refrained from attributing it to Trump's tariff policy. He suggested that a “reasonable base case is that the effects will be relatively short lived — a one-time shift in the price level.”
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The general consensus is that the Fed will reduce rates in September, although perhaps not as significantly as the markets, or President Trump, would prefer. Further cuts are expected to follow as the Fed evaluates the outcome.
Powell seemed to acknowledge the tension between Trump's desire to stimulate the labor market and his own concerns that inflation may not yet be under control. However, he assured that the decision will be “based solely on [Fed officials’] assessment of the data and its implications for the economic outlook and the balance of risks.”
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“We will never deviate from that approach,” he added.
There appears to be more at play here than mere rate cuts. The strained relationship between Trump and Powell was evident during their tour of the Fed's costly renovation project. Trump has publicly criticized Powell, calling him a “numbskull” and a “total and complete moron.” Allegedly, Trump even penned a letter dismissing Powell.
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Powell's leadership is under threat. Not only does his term as chairman end next year, but he is also on the brink of losing his influence over the seven-member board. Two members are openly opposing Powell's stance on interest rates.
Trump has nominated an ally to fill a vacant position and is pressing for the resignation of Lisa Cook, who is embroiled in a tax evasion and loan fraud investigation. If Cook resigns, Trump will secure a clear majority on the Fed's Board of Governors, enabling him to align economic and monetary policy more closely with his vision.
