On 22/8, at the annual Federal Reserve (Fed) symposium, Fed Chair Jerome Powell addressed economists and policymakers. He described the US labor market as balanced, but noted this balance stems from "both labor supply and demand decreasing."

"This unusual situation suggests a growing risk of a weakening labor market. If this materializes, the situation could deteriorate rapidly," he warned. However, the Fed must also consider the risk of import tariffs triggering "prolonged high inflation."

"Unemployment rates and other labor market indicators remain stable, allowing us to be cautious when considering policy changes. However, with monetary policy still tight, shifts in the balance of risks could necessitate adjustments," Powell said.

Fed Chair Jerome Powell during a press conference on 30/7. Photo: Reuters

Fed Chair Jerome Powell during a press conference on 30/7. Photo: Reuters

He explained that while import tariffs are expected to increase prices, their impact on inflation will likely fade over time.

Analysts suggest Powell's comments indicate he is open to an interest rate cut at the policy meeting on 16-17/9. This decision, however, will heavily depend on the employment and inflation reports released beforehand.

Powell's remarks spurred a rally in both gold prices and US stock markets. Gold surged nearly 38 USD to 3,375 USD per ounce. The DJIA, S&P 500, and Nasdaq Composite all rose between 1.6% and 2%.

Global gold prices surge after Powell's speech. Photo: Kitco

Global gold prices surge after Powell's speech. Photo: Kitco

Investors also increased their expectations of a September rate cut. The probability of a 25 basis point (0.25%) reduction is now close to 90%, up from 75% prior to Powell's statement.

Powell, however, did not specify when or how quickly rates might be lowered. This ambiguity could lead to continued pressure from President Donald Trump, who maintains that the US is not currently experiencing inflation and that the Fed should cut rates immediately.

This year, the Fed has held interest rates steady at 4.25-4.5%, following three reductions last year. Fed officials have hesitated, concerned that Trump's import tariffs could ignite a new wave of price increases. Inflation in the US remains above the Fed's 2% target.

In recent months, the Fed has become a target of the President's criticism for not lowering the benchmark interest rate. This week, he called for Federal Housing Finance Agency (FHFA) Director Bill Pulte to urge Attorney General Pam Bondi to investigate Fed Governor Lisa Cook over mortgage purchases, and subsequently called for Cook's resignation. On 22/8, Trump even threatened to fire Cook if she did not resign.

Ha Thu (Reuters)