As US Fed signals possible rate cut in September, annual meet exposes its hard road ahead

Houston – The Federal Reserve’s annual gathering in the Rocky Mountains is usually a time for US central bankers and their wonky friends to kick back, discuss a few complicated economic topics and then go for a hike in the shadow of Grand Teton.

But the Fed’s Jackson Hole symposium, which wrapped up on Aug 23, was at times a tense affair and drove home how difficult the path ahead is for the US central bank.

On Aug 23, chairman Jerome Powell used his keynote speech to

signal the Fed is headed for an interest rate cut

as soon as its next policy meeting in September. Yet there are clear divisions among policymakers over whether that’s the right call. Mr Powell, himself, noted the economy has handed Fed officials a “challenging situation”.

Policymakers are grappling with inflation that is still above their 2 per cent goal – and rising – and a labour market that is showing signs of weakness. That unnerving reality, which pulls policy in opposite directions, is made worse by a high degree of uncertainty about how each of those factors will evolve over the coming months.   

“We’re getting some cross-currents, and it’s in a difficult environment,” Chicago Fed president Austan Goolsbee said in an interview on the sidelines of the conference. “I always say the hardest job the central bank has is to get the timing right at moments of transition.”

The conference also highlighted the political pressures weighing on the Fed. Those are likely to intensify in coming months as US President Donald Trump looks to put his stamp on what may be the most prominent federal institution to have so far

escaped his overhaul attempts.

As Mr Powell delivered his speech on Aug 23, Mr Trump said he would

fire Fed governor Lisa Cook

if she did not resign over recent allegations that she committed mortgage fraud. It is the latest attempt by the administration to pressure the Fed from multiple angles as Mr Trump relentlessly pushes for lower interest rates. 

Security for the event was noticeably heightened compared to recent years, adding to the tension at the gathering. Officers from the Fed Police, US Park Police and Teton County Sheriff’s Office, some in military-style fatigues and carrying weapons, were a constant presence.

Earlier in the day, officers had to remove one person, the Trump-backer and Fed gadfly James Fishback, after he confronted Dr Cook in the lobby of the lodge and shouted questions about the mortgage controversy. 

Rate path

Mr Powell, in what was likely his final Jackson Hole speech at the helm of the Fed, detailed the cloudy signals coming from the economy. 

While the effect of tariffs on prices is now visible, there are still questions about whether that will reignite inflation in a more persistent way, he said. He called the labour market’s current status – with both falling demand for and declining supply of workers – “curious”.

Even with those uncertainties, Mr Powell opened the door to a rate cut at the Fed’s Sept 16 and 17 meeting, though it was not as clear a signal as at its 2024 conference. Then, the labour market was deteriorating, but inflation worries had receded, and many policymakers shared a desire to cut soon. The backing is not nearly as strong in 2025.

Recent data have shown inflation has stalled above the Fed’s 2 per cent goal, with some measures indicating that price pressures may be spilling over to products and services not directly impacted by tariffs. Meantime, while hiring has slowed significantly over the summer, other labour market indicators, like the low level of unemployment, paint a more stable picture.

Without much clarity on how the economy will unfold, disagreements over how to proceed are festering among policymakers. Already, two governors dissented at the Fed’s July meeting, when officials did not cut rates. If they do cut in September, others may dissent in the opposite direction.

Policy disagreements could grow in the coming months as Mr Trump names new officials to vacancies at the Fed and Mr Powell’s term as chair ends in May. The President has already tapped Dr Stephen Miran, who chairs his Council of Economic Advisers, to fill an open slot on the Fed board that expires in January.

In his remarks, Mr Powell “emphasised that his job is inflation and unemployment, and that can only be achieved within an independent Fed”, said Dr Carolin Pflueger, an associate professor at the University of Chicago Harris School of Public Policy. “I think people appreciate that.”

That appreciation became apparent when Mr Powell was greeted with a standing ovation from economists and policymakers from around the world – and not for the first time in 2025.

For them Fed independence is not only a matter of principle but also practicality, since decisions taken in Washington inevitably come with consequences that spread far beyond.

The US dollar attempted on Aug 25 to pull itself up from a four-week low on the euro after Mr Powell sent it tumbling more than 1 per cent when he opened the door to a Fed rate cut.

The greenback added 0.2 per cent to US$1.1699 per euro early in the Asian day, but remained not far from its Aug 23 low of US$1.174225, a level not seen since July 28. BLOOMBERG