Just three weeks ago, Federal Reserve Chair Jerome Powell spoke to reporters after the central bank kept its key interest rate unchanged for a fifth straight meeting and described the job market as “solid.” His assessment mattered because if the job market is healthy, there is less pressure for the Fed to cut its key rate, as U.S. President Donald Trump has demanded. Two days later, the Labor Department issued a report showing hiring was weak in July and much lower than previously estimated in May and June.
Wall Street and the White House will closely watch Powell’s high-profile speech Friday at the Fed’s annual economic symposium in Jackson Hole, Wyo. If the data-dependent Powell signals a gloomier outlook on the job market, it could open the door for a rate cut at the Fed’s September meeting. He could also stick to his cautious approach and say more time is needed to assess the impact of Trump’s sweeping tariffs on inflation.
Most economists expect Powell to indicate a rate cut is likely this year, but he may not commit to one next month, which could disappoint Wall Street, where traders have priced in a September cut. Powell’s speech, his last at Jackson Hole as Fed chair before his term ends in May, comes amid a fraught backdrop. About a week after the jobs report, the latest inflation data showed price growth edged higher in July. Core prices, excluding volatile food and energy categories, rose 3.1% from a year earlier, above the Fed’s 2% target.
Stubbornly high inflation pushes the Fed in the opposite direction from weak hiring, suggesting the central bank’s short-term rate should remain at 4.3%, keeping borrowing costs for mortgages, auto loans and business loans elevated.
“So the plot has thickened,” said David Wilcox, a former top Fed economist and now director of economic research at Bloomberg Economics and a senior fellow at the Peterson Institute. “The dilemma that the Fed is in has become, if anything, more intense.”
Powell is also facing unprecedented public criticism from Trump and efforts by the president to exert more control over the Fed, which has traditionally been independent. Most observers credit Powell for his steady handling of these pressures.
A notable moment came during Trump’s tour last month of the Fed’s office renovations. Trump criticized the project’s cost, which had risen to US$2.5 billion from an earlier estimate of US$1.9 billion. On site, Trump claimed costs had ballooned to US$3.1 trillion. Powell calmly dismissed the figure, noting it included a third building renovated five years earlier.
“That was just such a classic Powell,” said Diane Swonk, chief economist at KPMG. “He just doesn’t get fazed. He’s got a humility that oftentimes I think is lacking among my colleagues in economics.” Powell’s response appeared to temporarily assuage Trump, who backed off threats to fire the Fed chair over the project.
The Trump administration has posed challenges throughout Powell’s unusually tumultuous eight-year tenure. Soon after his 2018 appointment, Powell endured criticism as the Fed gradually raised rates from the low levels maintained since the 2008-2009 Great Recession. He then navigated the Covid pandemic and the worst inflation spike in four decades, caused in part by stimulus-driven spending and supply chain disruptions. Powell oversaw rapid rate hikes that were predicted to trigger a recession, yet the economy continued to grow.
On Wednesday, Trump called on Fed governor Lisa Cook to resign following allegations of mortgage fraud by Bill Pulte, head of the agency regulating Fannie Mae and Freddie Mac. Cook said she would not be “bullied” into resigning and is preparing to respond to the charges.
Difficult decision
Powell faces a difficult interest rate decision. The Fed’s “dual mandate” is to maintain price stability while seeking maximum employment. Weak jobs data suggest a cut may be warranted, but many Fed officials fear inflation could worsen.
“There is still a fair amount that’s still outstanding,” said Raphael Bostic, president of the Fed’s Atlanta branch, referring to tariff-driven price increases. “Feedback we’ve gotten both in our surveys and from direct conversations suggests many are still looking to see the price they charge their customers increase from where we are today.”
Other economists point to the housing market slowdown as evidence of a weak economy. Sales of existing homes rose in July, but elevated mortgage rates continue to dampen the market. Consumer spending has been modest, and growth was 1.2% annualized in the first half of 2025.
“There’s not a lot to like about the economy right now outside of AI,” said Neil Dutta, an economist at Renaissance Macro. “The weakness in the economy isn’t about tariffs,” he added, “but instead the Fed’s high rates.”