Powell flags ‘shifting’ risks
Fed Chair Jerome Powell’s Jackson Hole speech signaled the Federal Reserve is preparing to pivot, both in the near term with interest rates and in the longer run with its policy framework. In the short run, Powell acknowledged that the “balance of risks appears to be shifting.” Inflation remains above target, with core PCE at 2.9% as the effects of tariffs “accumulate,” while the labor market is softening as job growth slows, labor force participation dips, and unemployment edges up to 4.2%. That two-sided risk, upside pressure on prices versus downside risks to employment, has markets already pricing in a September rate cut. Beyond September, though, Powell was clear that “monetary policy is not on a preset course” because the FOMC makes decisions “based solely on [its] assessment of the data.”
At the same time, Powell underscored a deeper pivot: The Fed is moving away from its 2020 strategy of flexible average inflation targeting and back toward a simpler flexible inflation-targeting approach, better suited to an economy where both inflation and employment risks matter. The new consensus statement restores a simpler framework and clarifies how the Fed balances its dual mandate when inflation and employment objectives diverge. Put differently, the Fed is now more willing to lean against labor market weakness, even if inflation is still a touch high.
What it means for the housing market
For housing, the Fed’s pivot could matter in two ways. In the short run, mortgage rates remaining at 10-month lows are already offering a boost to affordability and, potentially, to buyer sentiment. That relief is welcome after several years of high borrowing costs eroded consumers’ purchasing power, leaving this summer especially frustrating for buyers, sellers, and builders as both existing– and new-home sales stayed sluggish. But there’s also a longer-run shift in play: If Powell’s new framework signals a steadier commitment to balancing inflation and employment risks, it could reduce uncertainty and stabilize rate expectations. Going forward, resolving economic uncertainty will be key for restoring consumer confidence and jumpstarting the housing market this fall, and beyond.