Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Wall Street heard what it wanted to hear. Federal Reserve Chair Jerome Powell, speaking Friday from the mountain air of Jackson Hole, Wyoming, all but confirmed the Fed may cut interest rates at its September meeting.
Within minutes, Treasury yields fell, the dollar weakened and the S&P 500 snapped a five-day losing streak, its longest slide since January.
Prices are still running hotter than the Fed’s target, Powell said during his keynote speech at the Fed’s annual retreat, but the cooling jobs market now looms as an equal concern. Together, the two forces give the central bank cover to reconsider its long spell of keeping rates higher than they’ve been in decades.
Job Market Cooling
Powell painted a portrait of an economy caught in crosscurrents.
Inflation has retreated sharply from its post-pandemic peak but remains above the Fed’s 2% target. Meanwhile, job growth has lost momentum.
Hiring has slowed to a crawl. The economy added just 73,000 jobs in July, and June’s tally was revised down to a scant 14,000, the weakest showing in nearly five years, according to the Bureau of Labor Statistics.
Even May’s figures were slashed by 125,000, leaving a meager gain of only 19,000 jobs.
“It is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said. The cooling labor market reflects both weaker hiring and a slowdown in immigration that had been bolstering the workforce.
Tariffs May Not Have a Lasting Impact
Add to that a wave of new tariffs, which Powell conceded are pushing consumer prices higher. But, in a rare note of optimism, he suggested the damage may not last.
Powell acknowledged that tariffs are already filtering into higher consumer prices. Still, he stressed that the impact is unlikely to create a lasting inflation problem.
“A reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level,” he said.
That adjustment, however, will not happen overnight.
Tariff costs move gradually through supply chains and distribution networks, and because tariff rates continue to change, the process could take longer than expected.
Powell’s broader point was that while households may face higher prices in the near term, the Fed does not see tariffs fueling a new, sustained cycle of inflation.
Wall Street Takes the Hint
At the time of this reporting, markets wasted no time parsing the nuance. To investors, Powell’s remarks cracked the door to easier money and they barged through.
- Stocks: The Dow Jones Industrial Average and Nasdaq both climbed more than 1%. The S&P 500 edged higher, erasing losses that had rattled traders for days.
- Bonds: The 10-year Treasury yield slid, a sign investors expect lower rates ahead.
- Dollar: Following Powell’s comments, the U.S. dollar lost ground, with the dollar index slipping more than 0.7%.
It was, in market-speak, a relief rally. For weeks, traders had been second-guessing whether the Fed would actually deliver a September cut after data showed inflation ticking higher. Powell’s words reset those odds.
The Politics and the Pressure
Powell is no stranger to pressure. For months, the Trump administration has been urging the Fed to slash rates to juice growth. Powell insists the central bank is independent, but the backdrop is hard to ignore: tariffs, immigration limits and fiscal shifts are reshaping the economic landscape.
“Our policy rate is now 100 basis points closer to neutral than it was a year ago,” Powell reminded his audience, signaling that the Fed has room to maneuver. At the same time, he stressed that monetary policy is “not on a preset course”—a hedge that means the September cut isn’t guaranteed.
What This Means for You
For households, the Fed’s decisions are felt in ways far less abstract than bond yields or stock charts. July’s Consumer Price Index (CPI), the government’s monthly gauge on inflation, rose 0.2%, a milder reading than in June.
Prices are up 2.7% over the past 12 months, with “core” inflation (excluding food and energy) still sticky at 3.1%. Those numbers are high enough to sting at the checkout line but not so high as to prevent the Fed from cutting. According to the CME FedWatch Tool, markets now see about an 89% chance of a quarter-point cut next month.
Here’s how a rate cut could impact you:
Mortgages: HELOCs and ARMs Feel It First
If you hold a 30-year fixed mortgage, a Fed cut won’t change your payment overnight. Those rates respond more to long-term bond yields. But adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are different.
They move with the prime rate, meaning your payment could drop within a billing cycle or two. On a $250,000 balance, a half-point cut can free up hundreds of dollars over a year. For fixed-rate borrowers, the payoff comes if long-term yields fall, creating a refinancing window. Use the lull to polish credit scores and prep paperwork.
Savings: Lock In Now
Savers are currently enjoying the best yields in a generation, with some high-yield savings accounts paying 5.00% APY or more. But those rates are fleeting. Banks typically trim deposit yields soon after the Fed cuts. Locking in today with a CD ladder or short-term Treasury bills can preserve higher returns while keeping some flexibility if rates remain high for longer.
Prices: Still a Mixed Bag
The July CPI shows relief at the gas pump and on some grocery items. But shelter, health care, insurance, used cars and airline fares continue to climb. The best strategy is timing: buy big-ticket items like appliances during seasonal sales, negotiate leases before increases set in and shop off-peak for travel.
Credit Cards: Small Cuts, Big Balances
Credit card APRs are tied to the prime rate, which follows the Fed’s benchmark. In theory, a cut should bring relief. In practice, the effect is tiny.
After the Fed’s half-point cut in September 2024, average APRs barely budged, dipping from 21.76% to 21.47%. That’s not enough to make a dent in monthly bills. Real relief comes from strategies like moving balances to a 0% introductory card, consolidating with a personal loan or shopping smaller banks that still offer competitive rates.
The Balancing Act Ahead
In his final turn at Jackson Hole, Powell, whose term as board chair ends in May 2026, didn’t swing for history with a grand gesture.
Instead, he left a kind of manual: stay nimble, stay honest and remember who the Fed is really for.
“Price stability is essential for a sound and stable economy and supports the well-being of all Americans.”
For a leader accused of moving too carefully, Powell’s farewell carried a quiet defiance—the future may be uncertain, but the mission endures:
“Monetary policy is not on a preset course. 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.”
It was a quiet but firm reminder of what the Federal Reserve is, and what it is not.
Despite public pressure from the White House to cut rates, the Fed is not beholden to any president. Its north star remains the same two objectives Congress gave it decades ago: maximum employment and stable prices.
Every rate move, Powell stressed, will be judged against that dual mandate, not politics.