FILE PHOTO: U.S. President Donald Trump and Federal Reserve Chair Jerome Powell speak during a tour of the Federal Reserve Board building, which is currently undergoing renovations, in Washington, D.C., U.S., July 24, 2025. REUTERS/Kent Nishimura/File Photo

By Howard Schneider and Ann Saphir

JACKSON HOLE, Wyoming (Reuters) -Federal Reserve Chair Jerome Powell on Friday pointed to a possible interest rate cut at the U.S. central bank's meeting next month, but stopped short of committing to it, in remarks acknowledging both the growing risks to the job market and ongoing threat of higher inflation.

"While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly," Powell told an audience of international economists and policymakers at the Fed's annual Jackson Hole conference in Wyoming. "It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed."

"The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," the Fed chief said, noting that while tariffs are expected to drive prices higher, the baseline case is for their impact on inflation to fade.

Powell's comments opened the door to a rate cut at the Fed's September 16-17 meeting, but also put heavy weight on the monthly employment and inflation reports that will be received before then. The nonfarm payrolls report for August is due to be released on September 5, with data on consumer and producer prices due the following week.

U.S. stocks rose after the remarks, and traders assigned a nearly 90% probability that the Fed would deliver a quarter-percentage-point rate cut next month, up from about 75% earlier in the day. U.S. Treasury yields dropped and the dollar slid.

"Chair Powell came in more dovish than expected," said Thomas Hayes, chairman of Great Hill Capital LLC. "He has set the table to move in September. The only thing that could derail that would be an excessively strong jobs report in the first week of September, but based on the trends that we're seeing on a weekly basis and the revisions, that is unlikely."

TRUMP PRESSURE CAMPAIGN

Powell's remarks offered little guidance about how soon or how quickly rates might continue to move lower, likely stoking further pressure from President Donald Trump, who contends there is no risk of inflation and that the Fed should slash rates immediately. Trump has been pressuring the Fed with calls for Powell to resign, and broadened that campaign this week with demands that Fed Governor Lisa Cook also leave her position.

As Powell delivered his remarks, Trump said in a post on his Truth Social media platform that he would fire Cook if she does not resign from the central bank. No president has ever fired a Fed governor, a position long understood to be only subject to removal "for cause," meaning malfeasance. The Department of Justice, after a referral from the Trump administration, has opened an investigation into alleged misstatements about her mortgages on two properties. Cook, who is attending the Jackson Hole conference, has said she won't be bullied into resigning.

Powell received a standing ovation as he began his remarks, a coda to eight years which began and ended with withering criticism from Trump, who nominated the former investment banker to lead the Fed during his first term but quickly soured over Powell's unwillingness to keep monetary policy as loose as the president wanted. The Trump administration is both searching for a replacement and pressuring Powell and other members of the Fed's Board of Governors to resign in hopes of appointing a majority of the seven-member body.

The Fed chief cannot be removed over disputes about interest rate decisions. Powell, who was appointed to a second term in the top Fed job by former President Joe Biden, has said he intends to continue leading the central bank until his term expires next May.

Alongside his update on the economy, Powell released a new Fed strategic framework that emphasized that the central bank's maximum employment mandate hinges on price stability.

The Fed has kept its benchmark interest rate steady in the current 4.25%-4.50% range since December, when officials began grappling with the likely impact the incoming Trump administration's policies might have on inflation, which remains above the central bank's 2% target and is projected to rise as new import tariffs work their way into consumer prices.

Some policymakers, including Governor Christopher Waller, who is on a list of possible Powell replacements, argue the impact of the tariffs will be modest and short-lived, and that rate cuts are warranted now to protect a weakening job market.

Economic data since the Fed's last meeting have pulled officials in both directions ahead of the meeting next month, which will include new quarterly economic projections from policymakers who as of June anticipated the need for two quarter-percentage-point rate cuts this year.

(Reporting by Howard Schneider and Ann Saphir with reporting by Ragini Mathur; Editing by Andrea Ricci and Paul Simao)