According to Xinhua News Agency, Jerome Powell, Chairman of the U.S. Federal Reserve, delivered a speech at the annual economic symposium in Jackson Hole, Wyoming, on August 22. He hinted that despite the current upside risks to inflation, the Fed might still cut interest rates in the coming months.
At the symposium, Powell dropped a "bombshell": a sharp slowdown in the job market has generated anxiety that outweighs inflation concerns stemming from tariff hikes, making interest rate cuts entirely necessary. On one hand, Powell indicated that the risk landscape appears to be shifting. While the job market seems stable, both supply and demand have slowed significantly, raising the possibility of an unusual scenario: the job market could deteriorate more than expected. If risk levels rise, large-scale layoffs and increased unemployment could follow as anticipated.
On the other hand, Powell made efforts to downplay the possibility of consecutive rate cuts. He pointed out that over the past four years, inflation has exceeded the 2% target. The impact of tariffs on consumer prices is already evident and is expected to persist in the coming months. The Fed’s primary concern is whether rising prices will significantly push inflation higher. However, Powell expressed some confidence that the price increases caused by tariffs would be relatively short-lived, though the effects of tariffs would not be absorbed in a one-time adjustment but would instead take time to diffuse throughout the supply chain. Given the current softness in the job market, wage cost pressures remain modest. Compared to his previous speeches, Powell appeared less composed this time, as the sudden changes in the job market have left the Fed with no time to wait—action must be taken now.
In this speech, Powell no longer emphasized relying on future data to guide monetary policy adjustments. This shift came after U.S. Treasury Secretary Besante, while discussing the qualifications for future Fed chair candidates, explicitly opposed data-dependent decision-making and expressed a preference for candidates with strong predictive abilities.
The U.S. job market has long remained robust, but the latest data suggests it may be losing steam. The revised figures for May and June showed job gains of 19,000 and 14,000, respectively, while the unrevised figure for July was 73,000. Data from the U.S. Department of Labor revealed that half of all industries are cutting jobs—a rare phenomenon that indicates a genuine softening of the job market. The Labor Department’s data may distort the true state of the job market, though not due to manipulation. Factors such as statistical methodologies, the speed of corporate feedback, and immigration policies have made data collection increasingly complex. The Trump administration’s anti-immigration policies will continue to disrupt the normal functioning of the job market.
If the head of the Labor Department’s statistics bureau were to be fired for producing data that displeases the government, the head of the Commerce Department’s statistics bureau (which releases key economic data such as GDP, personal consumption expenditures, and international trade figures) would have reason to fear for their job as well. This could lead to a rise in data falsification, which would spell disaster for the nation’s economy and financial system.
Inflation continues to plague the U.S. economy. The high tariff levels are expected to have long-term impacts on domestic production and consumption. The U.S. economy has long benefited from the宽松 international economic and political environment of recent decades, particularly the low-inflation, low-interest-rate environment. However, with de-globalization risks running high and some countries resorting to trade protectionist policies, the existing international economic and trade system is becoming fragmented, meaning the shadow of inflation never truly disappears. From January to July of this year, the U.S. core Consumer Price Index (CPI), excluding food and energy, rose by 3.3%, 3.1%, 2.8%, 2.8%, 2.8%, 2.9%, and 3.1%, respectively, showing an upward trend. The July data indicated significant price increases in transportation, healthcare, and fuel, with used car prices also rising substantially.
Will interest rate cuts fuel inflation? If rates are cut too quickly and inflation spirals out of control, the Fed may have to raise rates again, leaving the problem for the next Fed chair to handle. In April 2021, U.S. inflation hit a 13-year high. The Federal Open Market Committee (FOMC) long believed that inflation was driven by temporary factors, such as supply chain disruptions, and would disappear once these factors normalized. The Fed’s misjudgment led to significant consequences, and it continues to face criticism for this error.
If the Fed succumbs to political pressure and gradually loses its decision-making independence (free from interference by the executive branch), the credibility of the U.S. dollar will inevitably suffer further damage. The global trend of de-dollarization could accelerate, and even the rising popularity of stablecoins would not be enough to save the dollar’s declining global influence.
