Federal Reserve Chair Jerome Powell on Aug. 22 signaled officials will likely lower interest rates in September despite a recent inflation rise, asserting that “downside risks to employment are rising.”

Although inflation is still “somewhat elevated,” he added, “At the same time, the balance of risks appears to be shifting,” Powell said in a speech he’s set to deliver at the Fed’s annual conference in Jackson Hole, Wyoming, at 10 a.m. ET.

“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said in the prepared text. “This unusual situation suggests that downside risks to employment arising. And as those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”

The remarks represent a notable shift in Powell’s stance the past few weeks.

In late July, despite slowing job growth. Powell said officials are focused mostly on the unemployment rate – still a historically low 4.2% - rather than weakening job numbers because Trump's immigration crackdown has reduced the number of payroll gains needed to keep unemployment stable. In other words, if companies are posting fewer job openings, it’s not so troublesome if fewer people are looking for work.

And Powell noted that while the unemployment rate is roughly at the Fed’s goal of full employment, inflation of just under 3% is still a ways from the 2% target, bolstering the case to keep rates elevated.

But that was before the bleak July jobs report.

Employers added just 73,000 jobs last month and employment gains for May and June were revised down by an outsize 258,000.

Powell noted Fed officials face a vexing choice as they debate whether to resume their interest-rate cutting campaign in September after a long pause.

President Donald Trump’s tariffs are pushing inflation higher, Powell said. But he added it’s difficult to tell if that represents a one-time bump to prices or a more enduring rise that affects consumers’ inflation expectations and drives up wages in a toxic cycle.

With job growth slowing and inflation rising, Powell acknowledged the tension between its two mandates.

“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside - a challenging situation,” he said. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.”

Powell didn’t commit to a rate cut next month. Fed officials will still review employment and inflation reports in early September before their meeting mid-month, providing a more rounded picture.

But he said, “With policy and restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he said.

The Fed lowers rates to support a sagging economy and job market. It raises rates or keeps them higher for longer to cool the economy and tame inflation. Officials slashed a key rate by a percentage point late last year but have been on hold since December as they assess the impact of the import levies on prices.

Trump’s tariffs are expected to push up prices and hamper growth as they sap consumer purchasing power and curtail spending, which makes up about 70% of economic activity. That has posed a challenging dilemma for Fed officials.

Trump has been badgering Powell and other Fed officials to cut rates for months, but Powell has said the independent agency isn’t influenced by politics and will do what’s best for the economy.

This article originally appeared on USA TODAY: Fed's Powell signals likely September rate cut as job growth sputters