The Federal Reserve’s Chair, Jerome H. Powell, delivered an assessment of the U.S. economy Friday at the Jackson Hole symposium. Just days earlier, Moody’s Analytics Chief Economist Mark Zandi sounded the alarm on sharply elevated recession probabilities.

In his annual address, Powell noted that while core inflation has eased closer to the Fed’s 2 percent target, core PCE inflation stands at 2.9 percent over the past year excluding food and energy, the trajectory is uncertain with higher tariffs. He warned that tariff-induced price increases, though likely a one-time shift in the price level, could nonetheless feed through supply chains and potentially spark adverse wage-price dynamics if left unchecked. 

With the federal funds rate now 100 basis points nearer to neutral than a year ago, Powell signaled that the FOMC will “proceed carefully” but remains prepared to adjust its stance should upside inflation risks or downside labor-market risks materialize.

Powell described the current labor market as “balanced” at a historically low unemployment rate of 4.2 percent, yet noted this balance stems from simultaneous slowdowns in both labor supply and demand. Payroll growth has averaged just 35,000 jobs per month over the past three months, well below the roughly 168,000 pace of 2024.

“Monetary policy is not on a preset course,” Powell said. “FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach.

He also reiterated that longer-term inflation expectations remain well anchored.

Following Powell’s speech, U.S. stocks surged with the S&P 500 climbing over 1.5%, breaking a five-day losing streak. Treasury yields fell and the dollar weakened as traders increased bets on September cuts.

Moody’s Analytics Chief Economist Mark Zandi warns that stalled payroll growth, rather than headline unemployment, offers the clearest early warning of an impending recession. 

Earlier in the week, Mark Zandi argued that recession risks are “really high,” pointing to near-zero payroll gains and weakening consumer spending as evidence of faltering momentum. He contends that standard recession indicators, like a rising unemployment rate, may understate true weakness this cycle, since immigration-driven labor-force contraction has kept unemployment deceptively low. 

With immigration curbs in place for over a year, foreign-born labor-force growth has turned negative, leaving overall labor supply flat and helping conceal emerging slack. Zandi warned that once monthly payrolls slip into negative territory, recession onset is all but certain.

Powell explicitly stated that “FOMC members will make these decisions based solely on their assessment of the data and its implications for the economic outlook.” Those assessments will include the Sept. unemployment, consumer and inflation data.