What is the latest on US interest rates?

US interest rates are back in the spotlight. After nearly nine months of holding rates steady, Federal Reserve Chair Jerome Powell’s Jackson Hole speech in August 2025 signaled a potential shift. Markets reacted immediately, with the Dow Jones hitting a record high and investors pricing in an almost 90% chance of a September rate cut.

This article dives deep into the latest developments, the economic backdrop driving the Federal Reserve’s decisions, and what lower interest rates mean for businesses, consumers, and investors. We’ll also break down the basics of interest rate economics in simple terms — so you can walk away with both the headlines and the understanding.

Powell’s Jackson Hole Speech: A Turning Point?

The Federal Reserve Chair’s annual Jackson Hole address is always a moment markets watch closely. This year, Powell struck a tone that many described as cautiously dovish. He hinted that a rate cut is “on the table” for September, but stressed that any move would be data-driven rather than pre-committed.

Why the shift? Powell pointed to three key themes:

• Slowing job growth — monthly payroll gains have dropped to around 35,000 in 2025, down from 168,000 per month in 2024.
• Unemployment stable but creeping higher — currently at 4.2%, suggesting risks of further labor market weakness.
• Tariffs pushing inflation — import tariffs have lifted prices, pushing the Fed’s preferred inflation measure (Core PCE) to 2.9%.

The Fed’s dual mandate — to maintain stable prices and maximum employment — requires balancing these dynamics. With inflation close to target but job growth faltering, Powell suggested the case for a rate cut is strengthening.

How Markets Reacted

The response from investors was swift. Following Powell’s remarks:

• The Dow Jones Industrial Average closed at an all-time high.
• The S&P 500 jumped 1.5%, while the Nasdaq rose nearly 1.9%.
• Futures markets raised the probability of a September rate cut to almost 90% (from ~75% the week before).

Markets thrive on expectations, and Powell’s willingness to acknowledge labor market risks provided reassurance that the Fed won’t stay on hold indefinitely. Investors also priced in the likelihood of additional cuts before year-end, a development that has ripple effects across asset classes from equities to bonds to real estate.

The Labor Market: A “Curious Balance”

Powell described today’s labor market as “unusual” — and for good reason. On one hand, job growth has slowed dramatically. On the other, unemployment remains historically low. Here’s what that looks like in numbers:

• 2024 monthly payroll gains: ~168,000
• 2025 monthly payroll gains: ~35,000
• Unemployment rate: steady at ~4.2%

This creates what Powell called a “curious balance.” Demand for labor has cooled, and supply (people looking for work) has also slowed. For the Fed, this raises red flags: the labor market may not be overheating, but its weakness could drag on economic growth if not addressed.

Inflation and Tariffs: Temporary or Persistent?

Inflation remains the other half of the Fed’s puzzle. The Fed’s preferred gauge, Core PCE (Personal Consumption Expenditures), is currently running at 2.9% — slightly above the 2% target. Much of this uptick comes from tariff-driven import costs. For example, tariffs on industrial inputs and consumer goods have filtered into higher producer and consumer prices.

The big question: is this inflationary shock temporary or lasting? Powell’s base case is that it’s largely transitory. Once tariffs settle, the Fed expects inflation to drift back toward target. Still, Powell acknowledged uncertainty, leaving open the possibility of stronger action if inflation expectations become unanchored.

The Fed’s New Strategy Framework

One of the most important takeaways from Jackson Hole was Powell’s articulation of the Fed’s revised strategy. The central bank is moving away from a rigid policy of “average inflation targeting” — where it aimed to offset periods of below-target inflation with periods of above-target inflation. Instead, the Fed is embracing flexibility.

The updated approach emphasizes:

• Dual mandate balance — equal weight on employment and inflation.
• Data dependence — policy shifts based on evolving conditions, not preset rules.
• Clear communication — avoiding rigid forward guidance, reducing market surprises.

This change reflects the realities of today’s economy: rapid technological change, geopolitical shocks (like tariffs), and global capital flows mean the Fed needs more room to maneuver.

Interest Rate Basics: Why Cuts Matter

To understand why markets care so much, it’s worth revisiting the fundamentals. Interest rates are the price of money. When the Fed raises or lowers rates, it affects the entire financial system:

• Borrowers — Lower rates make loans (mortgages, business credit, student loans) cheaper.
• Savers — Lower rates mean lower yields on savings accounts and CDs.
• Businesses — Lower financing costs make investment and expansion more attractive.
• Investors — Lower rates often push investors into riskier assets like stocks, boosting valuations.

In short: cutting rates stimulates demand, while raising rates cools inflation.

Global and Political Pressures

Powell’s speech also came against a backdrop of global uncertainty and political pressure. The Fed is meant to be independent, but recent months have seen strong calls from political leaders — including President Trump — for the Fed to lower rates more aggressively to support growth.

Meanwhile, global central banks from Europe to Asia are also in easing mode, making the Fed’s choices part of a wider global monetary narrative. A more accommodative Fed aligns with global liquidity trends, but it also risks fueling asset bubbles if not carefully managed.

What This Means for Different Groups

For Consumers

If cuts come, mortgage rates, auto loans, and credit card APRs could fall. That means lower monthly payments and more purchasing power for households.

For Businesses

Companies benefit from cheaper financing. Expansion projects, acquisitions, and hiring become easier to fund, supporting growth.

For Investors

Equity markets tend to rally on lower rates, as future earnings are discounted at a lower cost of capital. Bonds may rally in the short term, but yields will compress.

For Savers

The downside is clear: yields on CDs, savings accounts, and Treasury bills will fall, making it harder for savers to earn safe income.

The Road Ahead

Looking ahead, the Fed has left itself maximum flexibility. While markets expect a September cut, Powell made clear that decisions will depend on incoming data. If job growth weakens further and inflation moderates, cuts are likely. But if tariffs keep inflation elevated, the Fed may pause.

This “wait and see” approach underscores a broader truth: the Fed is trying to manage not just numbers, but expectations. By hinting at cuts without promising them, Powell gives the central bank room to adjust without shocking markets.

Key Takeaways

• Markets are betting heavily on a September rate cut (~90% probability).
• The labor market is weakening, with payroll growth slowing to ~35K per month.
• Inflation is at 2.9%, driven by tariffs, but expected to moderate.
• The Fed’s new flexible strategy allows for more pragmatic decision-making.
• Consumers, businesses, investors, and savers will all feel the effects differently.

Ultimately, Powell’s Jackson Hole speech was less about immediate action and more about signaling a shift. The Fed is opening the door to cuts, but keeping the option to pause. For markets, that was enough to cheer — but for the real economy, the real test is still ahead.

Conclusion

Interest rates are one of the most powerful levers in the economy. With Powell’s latest remarks, we may be entering a new phase of monetary policy — one where flexibility trumps rigid rules, and where the Fed seeks to balance an “unusual” job market with the ever-present challenge of inflation.

For strategic finance professionals, understanding these dynamics is critical. Whether you’re modeling capital costs, forecasting growth, or advising on investment decisions, Fed policy directly impacts the assumptions you use. Staying informed means staying ahead.