Federal Reserve Chair Jerome Powell’s address at the central bank’s annual Jackson Hole symposium has provided the strongest indication yet that conditions could soon justify interest rate cuts. While Powell stopped short of explicitly endorsing imminent easing, his carefully calibrated remarks suggested the Fed is edging towards policy adjustments as economic risks mount.

The comments sparked immediate market reaction, with equities surging and Treasury yields falling as investors read Powell’s language as confirmation that rate cuts may arrive at the Federal Open Market Committee’s (FOMC) September 16–17 meeting.

Balancing Growth and Inflation Risks

Powell’s remarks highlighted the unusual challenges facing the US economy. The labour market remains resilient, unemployment low, and growth steady, yet uncertainty clouds the outlook. Trade disputes, sweeping shifts in tax and immigration policy, and the unpredictable course of tariffs have all complicated the Fed’s dual mandate of maintaining full employment and price stability.

“Policy remains in restrictive territory,” Powell noted, underscoring that rates are still elevated compared with a year ago. However, he acknowledged that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

Markets interpreted this as the Fed preparing to cut rates to protect growth, particularly as downside dangers from tariffs and global trade frictions mount. Yet Powell also cautioned against complacency: tariffs could prolong supply chain disruptions and reignite inflationary pressures raising the spectre of stagflation, a scenario the Fed is determined to avoid.

Market Reactions: Risk Assets Cheer, Yields Slide

The speech had an instant effect on financial markets. The Dow Jones Industrial Average surged more than 600 points shortly after Powell’s prepared remarks were released, reflecting investor optimism about looser monetary policy ahead.

At the same time, yields on the policy-sensitive 2-year Treasury note dropped 0.08 percentage points to around 3.71%, signalling traders are increasingly convinced that rate cuts are imminent. Crypto assets, which often benefit from a lower-rate environment due to their correlation with broader risk appetite, also saw renewed buying interest as traders priced in cheaper dollar liquidity.

The Fed has kept its benchmark borrowing rate between 4.25% and 4.5% since December, a level seen as moderately restrictive. With inflation showing signs of cooling but still volatile due to trade shocks, markets had already been betting on rate cuts before the September FOMC. Powell’s Jackson Hole comments bolstered that narrative.

Fed Independence vs Political Pressure

One notable element of Powell’s speech was his pointed defence of Federal Reserve independence. Without naming President Donald Trump directly, Powell stressed that monetary policy decisions would be made “solely on data and its implications for the economic outlook.”

The reassurance was significant given Trump’s repeated public attacks on Powell and the Fed, as well as his demands for more aggressive rate reductions. Powell’s insistence on independence served as a reminder that while political noise is unavoidable, the central bank’s credibility depends on policy being anchored in economic fundamentals rather than short-term political goals.

For crypto markets, the Fed’s independence is especially important. Investors often turn to decentralised assets as a hedge when central bank credibility is questioned. Powell’s stance reassures traditional markets, but any signs of political interference could reignite safe-haven flows into Bitcoin and stablecoins.

Lessons from Inflation and the Policy Framework

Powell also revisited the Fed’s five-year policy framework review, drawing lessons from the turbulence since 2020. Back then, the Fed introduced “flexible average inflation targeting,” allowing inflation to temporarily run above 2% to support stronger labour markets after years of undershooting the goal.

Yet reality diverged sharply. Inflation surged to 40-year highs, far exceeding the Fed’s projections, while policymakers initially dismissed the rise as “transitory.” Powell candidly admitted that the framework’s tolerance for higher inflation proved irrelevant against the magnitude of the price surge.

“The past five years have been a painful reminder of the hardship that high inflation imposes, especially on those least able to meet the higher costs of necessities,” he said. The Fed has since reaffirmed its 2% inflation target, viewing it as essential to anchoring long-term expectations, though debate continues over whether that level remains appropriate.

What Comes Next

Powell’s careful phrasing, acknowledging risks while keeping options open reflects the Fed’s desire to preserve flexibility. With tariffs still evolving, global supply chains adjusting, and domestic inflation signals mixed, the central bank is unwilling to commit to a fixed path.

Still, markets see Powell’s comments as the clearest sign yet that rate cuts are on the table. The September FOMC meeting now looms as a critical moment for monetary policy, with investors, traders, and even crypto markets aligning expectations around easing.

For crypto investors, the implications are clear: lower rates typically weaken the dollar, boost liquidity, and increase risk appetite, conditions historically favourable for digital assets. Yet the shadow of stagflation risk lingers. Should tariffs drive costs higher while growth slows, the Fed could find itself in a policy bind, limiting its ability to cut further.

As Powell summed up, “It will continue to take time for tariff increases to work their way through supply chains and distribution networks. Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”