What Powell Said About the Possibility of a September Rate Cut

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1:38Amara Omeokwe:News. At the Federal Reserve's annual economic policy conference in Jackson Hole, Wyoming on Friday, Federal Reserve Chair Jerome Powell left the door open for a possible rate cut in September. And the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. His remarks sent a positive signal to Wall Street. The response is rip-roaring in markets with equities surging, yields plunging.

2:17Amara Omeokwe:But we're not as warmly received by President Trump. He's been putting pressure on the Fed to lower interest rates for months. He spoke from the Oval Office on Friday afternoon. Well, we call him too late for a reason. You should have cut him a year ago. He's too late. Amara Amokwe covers the Federal Reserve and the U.S. economy for Bloomberg News.

2:37Saleha Mohsin:The big takeaway is that he opened the door for the first time this year to a rate cut. And this was the key phrase in the speech. Quote, the shifting balance of risks may warrant adjusting our policy stance.

2:50Amara Omeokwe:She's been tracking the unique moment the U.S. Central Bank finds itself in. It's under increasing criticism from the Trump administration for how it's handled rate decisions, a threat from the president to fire a sitting Fed governor if she doesn't resign, the early departure of another governor on the board, and the end of Powell's chair term in May.

3:10Saleha Mohsin:It's been an unprecedented pressure campaign from the Trump administration and his allies on Chair Powell and the Fed for lower interest rates. We've heard Treasury Secretary Scott Bessent also talking about the fact that the Fed is behind the curve. And so it really has been an all out assault. And we've seen the criticisms kind of extend beyond interest rate policy to then also scrutinizing this$2.5 billion renovation that the Fed is doing of its headquarters. Now we have Bill Pulte, who was the head of the FHFA, accusing one of the Fed governors of mortgage fraud and calling on her to resign because of it.

3:48Saleha Mohsin:So we're just seeing Trump and people around him put pressure on the Fed from sort of any angle that they can find.

4:18Amara Omeokwe:between the Trump administration and the Federal Reserve.

4:24Amara Omeokwe:This year's Jackson Hole Economic Policy Symposium comes at a significant time. For months, the Trump administration has been putting pressure on Federal Reserve Chair Jerome Powell to cut interest rates. And the next rate decision will come in about a month, in mid-September. Here's my colleague, Amara Amokwe, who covers the Federal Reserve for Bloomberg.

4:45Saleha Mohsin:The Fed has not cut interest rates this entire year after cutting interest rates three times at the end of 2024. And the reason that Chair Powell and other Fed officials up until now have been hesitant to do rate cuts is because they are on guard for the potential for President Donald Trump's tariffs to stoke inflation. So, of course, the Fed has two responsibilities to foster maximum employment and to keep inflation stable. And so right now, those two goals are a little bit in tension because if tariffs are going to drive inflation, that would suggest not doing rate cuts. But if the labor market is weakening, that would suggest that they should be cutting rates.

5:27Amara Omeokwe:Now we know that Powell is leaving the door open to a possible rate cut. I asked Amera to react to what she heard in Powell's speech. He didn't say definitively that officials will cut at their next meeting in September, but his remarks signaled that the option is on the table.

5:44Saleha Mohsin:And there he was talking about the fact that in his view, and as he also talked about in the speech, downside risks to employment are rising. And this was a notable shift for Powell because as recently as last month, he had a more optimistic tone about the labor market. But on Friday, he sounded more cautious. He referenced the weak jobs report we got earlier this month, and he cautioned that if risks in the labor market materialize, it could lead to higher layoffs and higher unemployment. At the same time, though, Powell continued to argue that policymakers must guard against the prospect that President Donald Trump's tariffs will lead to persistent inflation.

6:22Saleha Mohsin:He said the effects of tariffs on consumer prices are now clearly visible, but it's reasonable to expect that the effects will be relatively short-lived. But he also said that it's possible that tariffs could bring more lasting inflation and that policymakers need to assess and manage that risk. Powell also said that the combination of the possibility for inflation to rise and for the labor market to weaken puts the Fed's policy calculations in a challenging situation. So while he did open the door to rate cuts, it was still a message that was carefully hedged.

6:54Amara Omeokwe:Before we dig into how the Fed will make its decision in September, I wanted Amara to talk us through how we got to this point, where Powell is under so much pressure.

7:04Saleha Mohsin:The president has been pushing for lower interest rates for a couple of reasons. One, he kind of pushes back against this idea that his tariffs will cause inflation to rise, right? So he's pushing against that idea because obviously tariffs are a centerpiece of his economic agenda. Then he's also saying that the Fed holding interest rates at the level where they are now is driving up borrowing costs for the U.S. government. And obviously the president has talked a lot about closing the U.S. deficit, bringing down U.S. borrowing costs. And so in a way, he wants the Fed to assist him in reaching that goal.

7:41Saleha Mohsin:And so what we've seen from President Trump is constant, constant, constant pressure on Chair Powell for lower rates.

7:47Amara Omeokwe:And that includes Trump at least talking about ruminating about firing Jay Powell. What's the likelihood of that at this point?

7:54Saleha Mohsin:Well, you know, this is something, as you reported on, that goes back to his first term, where he has constantly flirted with the idea of firing Powell. He seems to have backed off that idea and is instead focusing sort of on this pressure campaign. And I think that's in part because from a legal perspective, it would be very difficult to remove him. The law that governs the Federal Reserve says that a Fed governor can only be removed for cause, which is a very high legal standard. The law is a little bit more ambiguous on whether the chair can or cannot be removed for cause. But the Supreme Court has also come out this year and kind of did an initial ruling that signaled that they would sort of insulate the Fed chair and Fed governors, really, from removal from their positions by the president.

8:39Saleha Mohsin:So from a legal standpoint, it seems like it would be very difficult for President Trump to remove Chair Powell. And we've seen him sort of back off from the idea as well.

8:49Amara Omeokwe:As Trump has backed off that idea, he's called for the resignation of one member of the Board of Governors, Lisa Cook, threatening on Friday to fire her if she doesn't resign. Trump shared that with reporters as Powell was speaking. Are you going to fire Lisa Cook, the Fed governor, over her mortgage for her? if she doesn't resign. What she did was abandon.

9:11Saleha Mohsin:Of course, either a firing or resignation from Cook would give the president an opportunity to name someone of his choosing to fill her slot on the Fed's board and likely push for the lower rates that President Trump wants. But earlier this week, Cook said in a statement that she would not be bullied into stepping down. And there are also lots of legal questions and doubts that a president can easily fire a Fed governor because of the law that governs the Fed.

9:38Amara Omeokwe:I asked Amara about how this evolving situation around Fed Governor Lisa Cook changed the conversations heading into Jackson Hole and might have informed what we heard from Powell.

9:48Saleha Mohsin:Well, if we were going to be talking about central bank independence, the Fed's independence on monetary policy, and the pressure campaign that the Trump administration has applied on Powell and the Fed this year, before these latest allegations on Lisa Cook came out, Now we're definitely going to be talking about that here, right? Like, this has just made it so crystal clear that this is what the Fed is facing. This is the greatest challenge that the Fed is facing, along with this interest rate decision that it has to make. But, you know, this is just such a huge, huge moment for the Fed at a time of transition for the Fed.

10:29Saleha Mohsin:Right. We had another governor resign earlier than expected. And President Trump is expected to put one of his allies into that seat. Chair Powell's term is expiring next May. So this board could begin to look very different. And the next chair could be someone who is very different. And so for the current people on the Fed, protecting the Fed's independence, pushing back against this pressure campaign from the president and his allies and saying, look, we're not going to lower rates because the president tells us so or because he's scrutinizing our construction project or scrutinizing our mortgages.

11:12Saleha Mohsin:We're going to make interest rate decisions based on what we see in the economy and what we see in the data. because if they show any sign of making their decisions for any other reason, that then opens up a potential can of worms where markets, investors, the public, can no longer potentially trust that the Fed will get inflation under control when we have an inflation problem, that the Fed is making its decisions based on their best judgments and not because of political pressure.

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13:30Amara Omeokwe:Speaking from the Grand Teton National Park in Wyoming on Friday, Powell very clearly telegraphed the importance of Fed independence and the central bank's reliance on trusted data. FOMC members will make these decisions based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach. Amara, let's dig a little bit deeper into the question of the data that's driving decisions of the Federal Reserve. Powell's critics, including Trump, who calls Powell too late, Jay, say that he's been behind the curve of inflation, waiting on data that turned out to need huge revisions later on.

14:12Amara Omeokwe:We saw over the summer that Trump fired the head of the Bureau of Labor Statistics in the wave of those revisions. How much validity is there to the criticism of how the Fed relies on data and which data it uses?

14:26Saleha Mohsin:BLS data is constantly revised, right? So the fact that we had revisions is not abnormal. The magnitude of the revisions this time was abnormal. So I think it is fair for people to say, OK, what is going on with the data? Why are the revisions so, so notable? But as we've been talking about, this is a labor market that's in transition. There are a lot of changes happening. And some of those because of President Trump's policies, like his immigration crackdown, like his efforts to reduce the size of the federal government. And also the BLS itself has talked about having fewer resources and therefore maybe some of the methods that they use not being as robust as they were in the past.

15:10Saleha Mohsin:So, you know, all of those things are happening. And so that's the backdrop. I think that the Fed has been pretty consistent, though, in explaining how it thinks about data and how it uses that data. Right. And so Chair Powell and the others have always talked about looking at the official government numbers that come out on inflation and the labor market, but also relying on what they're hearing from businesses and people when they're out in the economy. The reason why the Fed is in such a difficult position right now is because the data is changing, but they're not all changing in the same direction.

15:50Saleha Mohsin:Right. So the labor market is pointing in one direction and the inflation data is pointing in a different direction. And so then that makes it hard for them to judge what the right move is based on the data.

16:00Amara Omeokwe:And where does this leave us in terms of credibility for the Fed and credibility of the data that's used to make these data dependent decisions?