Federal Reserve Chair Jerome Powell has signaled that the conditions in the economy 'may warrant' interest rate cuts, as the Fed proceeds cautiously amidst rising uncertainties. During his speech at the Jackson Hole conference, Powell highlighted 'shifting' risks to the economic outlook, including changes in tax, trade, and immigration policies, which are affecting the balance between full employment and price stability. Despite the labor market remaining resilient and the economy performing well, Powell expressed concerns about downside risks and the potential for inflation to rise again due to tariffs and other factors. He noted that the Fed’s policy stance is currently restrictive and that the shifting risks might justify adjustments, including rate cuts, in the near future. Powell emphasized the importance of Fed independence and indicated that decisions will be data-driven, not influenced by political pressures. Market reactions were positive, with stocks rallying over 600 points and Treasury yields falling following his remarks. Powell also reviewed the Fed’s recent policy framework review, reaffirming its commitment to a 2% inflation target, and acknowledged the lessons learned from the inflation surge of the past year. Overall, Powell’s cautious tone and acknowledgment of increased risks have heightened expectations of a rate cut at the upcoming Fed meeting in September.