(MENAFN- Gulf Times) Federal Reserve (Fed) Chair Jerome Powell has signalled that a September interest rate cut is possible, despite a recent uptick in inflation, warning that“downside risks to employment are rising”.
Speaking at the Fed's annual Jackson Hole conference in Wyoming recently, Powell stressed that the US central bank would move cautiously, noting the need to weigh the effects of tariffs and broader policy shifts on the economy.
While acknowledging that inflation remains“somewhat elevated”, Powell said the“balance of risks appears to be shifting”.
He also announced a reversal of a five-year-old policy framework that could keep interest rates higher over the longer term.
“The labour market appears to be in balance, but it is a curious balance created by a sharp slowing in both the supply of and demand for workers,” Powell observed.
“This unusual situation suggests that downside risks to employment are emerging - and when they materialise, they can do so quickly, through sharply higher layoffs and rising unemployment.”
His comments drew close attention from both Wall Street and the White House, where President Donald Trump has repeatedly pressed for rate cuts.
Trump argues that lower borrowing costs would ease the government's interest burden on its $37tn debt and provide relief to the housing market.
Powell, however, highlighted the dual risks of rising unemployment and persistent inflation. With hiring slowing, he suggested the labour market could weaken further, stating:“The shifting balance of risks may warrant adjusting our policy stance.”
Analysts interpret this as Powell's clearest signal yet that a rate cut is on the table. Economists at Goldman Sachs, for example, said his remarks are consistent with expectations of a quarter-point reduction at the Fed's September 16–17 meeting. The benchmark rate currently stands at 4.3%.
The Fed has three meetings remaining this year - in September, late October, and December - although it remains uncertain whether officials will ease policy at each.
Inflation has picked up in recent months, with consumer prices rising 2.7% in July from a year earlier, above the Fed's 2% target. Core prices, which exclude food and energy, climbed 3.1%.
While tariffs have not fuelled inflation as much as feared, they are beginning to raise prices on imported goods such as furniture, toys, and shoes.
The Fed's decisions carry global significance. Because the US dollar is the world's primary reserve currency and American markets are deeply integrated into global finance, Fed policy often shapes monetary decisions elsewhere.
Emerging market central banks, in particular, frequently adjust their own policies to avoid destabilising capital outflows or currency volatility.
Historically, Fed rate hikes have seen strengthening the dollar and tightening global financial conditions, pushing capital into US assets and raising borrowing costs worldwide.
Conversely, rate cuts tend to weaken the dollar, improve global liquidity, and lift equities, commodities, and other risk assets.
Analysts say emerging markets with large dollar-denominated debt are highly sensitive. A stronger dollar raises repayment burdens, risks capital outflows, and can trigger financial instability.
Conversely, a weaker dollar after rate cuts can reduce debt pressures and improve emerging market currencies.
Higher rates in the US slow domestic demand, reducing imports and dampening global trade flows. This can especially affect countries that are heavily reliant on US consumption.
On the other hand, rate cuts stimulate US demand and can provide a lift to global growth, though with a lag.
In respect of commodities, a stronger dollar (often tied to higher Fed rates) puts downward pressure on commodities priced in dollars (like oil, gold, and copper), making them more expensive for non-US buyers.
Lower rates and a weaker dollar usually support commodity prices, which benefits exporters around the world.

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