Powell Hints at Potential Fed Pivot Amid Rising Labor Market Risks

11:01 AM EDT, 08/22/2025 (MT Newswires) -- Federal Reserve Chair Jerome Powell on Friday indicated a potential monetary policy pivot to lower rates, saying that downside risks to employment were rising while the effects of tariffs on inflation will likely be short lived.

Data released earlier this month showed that the US economy added fewer jobs than projected in July, while gains in the previous two months were revised sharply lower.

Labor supply and labor force participation growth have softened, Powell said in prepared remarks for delivery at the Kansas City Fed's annual Economic Policy Symposium in Jackson Hole, Wyoming.

"While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers," Powell said. "This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."

Powell said that tariff impacts on inflation will likely accumulate over the coming months, though these increases are expected to be "relatively short lived."

"In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside -- a challenging situation," he said. "With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."

The odds of a 25-basis-point reduction in rates next month shot up to 93% on Friday from 75% on Thursday, according to the CME FedWatch tool.

Recent official data showed that consumer inflation in the world's largest economy slowed down in July on a sequential basis, while the annual core rate jumped above 3%.

The Federal Open Market Committee left its benchmark lending rate unchanged in July for a fifth straight time, though governors Christopher Waller and Michelle Bowman preferred a quarter-percentage-point cut to avoid a potential deterioration in the labor market.

At the time, most of Fed officials saw potential inflation pressures outweighing risks to the labor market, minutes of the July 29-30 meeting showed Wednesday.

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