Powell Opens to a Rate Cut; The White House: "Too Late"

New York – Jerome Powell has opened the door to cuts after months of closure, reviving markets but failing to satisfy Donald Trump. In his highly anticipated speech at the annual central bankers' convention in Jackson Hole, Wyoming , the Fed chairman said he was willing to cut interest rates for the first time but warned that the labor market is facing an abnormally rapid decline in both supply and demand and is already experiencing rising inflation linked to tariff policy. " Conditions have changed," he warned, and there are "new challenges ahead," but "the underlying outlook and the shifting balance of risks may justify an adjustment in our monetary policy stance."

Financial markets reacted positively: the Dow Jones rose 1.89%, hitting a new record, and the Nasdaq advanced 1.88%. The dollar lost about one point against the euro. But in the same minutes as Powell presented his report, Trump launched new attacks on the Central Bank: the US president threatened to fire Lisa Cook, accused of real estate fraud, from the Fed board if she didn't resign . Powell's tone in his speech did little to ease tensions. Trump commented: "The cuts? Too late. It should have been done a year ago." The tycoon was calling for a more substantial intervention than Powell had suggested (analysts estimate 0.25 points in September). The US administration's concerned analysis of the economy must not have been well received: the head of the US Federal Reserve spoke of "uncertainties," "a weak market," "inflation already reflecting the impact of tariffs," and "immigration policy that has led to a sharp slowdown in labor force growth." These passages are out of step with the rhetoric of America's golden age that the White House evokes daily in its press release. "GDP growth," Powell stated, "slowed significantly in the first half of this year, settling at a pace of 1.2%, about half the 2.5% growth expected in 2024." The decline, he explained, "largely reflects a slowdown in consumer spending." "As with the labor market," he continued, "part of the GDP slowdown likely reflects slower growth in supply or potential output." Risks to inflation, he noted, are on the upside, and those to the labor market are on the downside. And to assess the real effect of the tariffs on supply chains "it will take time."

"We continue to believe," he added, "that a long-term inflation rate of 2% is most consistent with our dual-mandate objectives. We believe our commitment to this objective is a key factor in keeping long-term inflation expectations well anchored." "Experience," he added, "has shown that a 2% inflation rate is sufficiently low to ensure that inflation does not pose a problem for households and businesses, while also providing the central bank with some policy flexibility to provide accommodation during economic downturns." The suggestion that monetary policy might be relaxed if inflation rises due to tariffs could represent another turning point. "The stability of the unemployment rate," Powell recalled, "and other labor market indicators allows us to proceed with caution as we evaluate potential adjustments to monetary policy."