Americans just got the biggest confirmation yet of an interest rate cut next month — but the job market hangs in the balance

• Federal Reserve Chair Jerome Powell delivered his biggest speech of the year at Jackson Hole on Friday.
• He gave the biggest confirmation yet that interest rate cuts are coming in September.
• However, he noted that the labor market is still in flux after a disappointing July jobs report.

Federal Reserve Chair Jerome Powell all but confirmed an interest-rate cut in September.

On Friday, Powell took the stage at the Jackson Hole Symposium, an annual meeting of central bankers from around the world, for his biggest speech of the year. He offered details on the Fed's thinking as the next Federal Open Market Committee meeting approaches in September, with all eyes on the first interest rate cut since the pandemic began.

While Powell has stressed the importance of moving slowly and ensuring the economy is on the right path toward the Fed's 2% inflation target, his Jackson Hole address solidified his confidence that the Fed's restrictive monetary policy has worked and suggested that the long-awaited pivot to lower interest rates is coming soon.

"The time has come for policy to adjust," he said. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

It's all but certain that the Fed will cut rates in September. CME FedWatch, a tool that estimates interest rate changes based on market probabilities, predicted a 71.5% chance the Fed will cut rates by 25 basis points and a 28.5% chance of a 50-basis-point cut, as of Friday morning.

That leaves the big question of how much — not if — the Fed will cut rates, and the upcoming jobs report will likely shed some light on that question. July's jobs report was surprisingly weak, with unemployment ticking up to 4.3%. On top of that, new data from the Bureau of Labor Statistics out this week showed job growth lower than previously reported over the previous year, with a downward revision of over 800,000 jobs.

Powell emphasized that slower job market in his speech. "Today, the labor market has cooled considerably from its formerly overheated state. The unemployment rate began to rise over a year ago and is now at 4.3 percent—still low by historical standards, but almost a full percentage point above its level in early 2023," he said.

That means the Fed will be closely watching the next jobs report on September 6 to help it determine how far to go on rate cuts in September and the rest of the year.

"Overall, the economy continues to grow at a solid pace," Powell said. "But the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate."

Powell has faced pressure from some economists and Democratic lawmakers to cut rates more than 25 basis points in September given the labor market's precarity. Still, Powell and Fed officials have expressed the importance of looking beyond a single data point. Chicago Fed President Austan Goolsbee previously told Business Insider that "data are noisy, so you want to look over a longer view.

"Our policy doesn't act instantly, and so we've got to be thinking about where we will need to be to pull off what I call the golden path, which is to get inflation down from these epic heights to something like our target without having a serious recession," he said.