Powell hints at rate cuts in Jackson Hole speech, markets rally

Federal Reserve Chair Jerome Powell used his Jackson Hole speech to signal that interest rate cuts could be on the horizon—though he stopped short of making a firm commitment.

He said “the balance of risks appear to be shifting” in the central bank’s goal of low inflation and strong employment.

Powell warned of stagflation risks if President Donald Trump’s tariffs push prices higher.

He said Fed officials could “proceed carefully” when considering policy changes, leaving the door open for cuts at the Fed’s September 16–17 meeting.

Markets jumped on the hint: the Dow surged 700 points to close at a record 45,631.74, with the S&P 500, Nasdaq, and Russell 2000 all climbing.

The Fed’s benchmark rate is at 4.25%–4.5% since December 2024.

Powell also addressed the Fed’s 5-year framework review, admitting the 2020 policy shift to tolerate inflation was a mistake as prices instead hit 40-year highs. He reaffirmed the 2% inflation target.

He also emphasized the financial institution’s independence amid political pressure from President Trump, who has demanded aggressive cuts.