Editor's note: He Weiwen is a senior fellow at the Center for China and Globalization. The article reflects the author's opinions and not necessarily the views of CGTN. 

Jerome Powell, US Federal Reserve (FED) chairman, delivered a key note speech at the annual Jackson Hole Economic Policy Symposium on Friday, highlighting the policy framework of the central bank. 

He envisaged the need of possible policy position changes in the light of balancing risks. Meanwhile he observed new difficulties in the job situation, rise in inflation and sharp drop in GDP growth rate. He held that while tariff impact on prices will be short, the price rises passing down may be prolonged and lead to persistent inflation. He made it clear that a 2 percent price rise best meets the FED's dual goal. The key point he made is that Federal Open Market Committee (FOMC) members will make decisions only on the assessment of data, the economic outlook and balance of risk. In other words, FED will not yield to the pressure of US President Donald Trump to cut rates.

The post-Jackson Hole FED policy framework is clear but the probability of a FED rate cut in September is unclear.

The FED decided to keep federal rates unchanged at its July FOMC meeting which irritated Trump. Trump has been pressing Powell hard to cut rate, threatening to remove him, even to sue him on the FED building refurbishment. There are two basic reasons. 

Firstly, the deteriorating federal budget deficit and skyrocketing federal debt. During the first 10 months of fiscal year 2025 (ending July 2025), the federal budget deficit hit $1.629 trillion, with the single month of July seeing deficit at $291 billion, despite an additional tariff revenue of $28 billion. Because the current federal rate stays at 4.25 to 4.50 percent, the federal debt service accounts for roughly $1 trillion. A full percentage point federal rate cut could save $360 billion. Note: The self-boasted "fantastic" tariff income did little help, and the One Big Beautiful Act added $22 billion federal debt per day, leading to total federal debt breaking the $37 trillion barrier. 

Secondly, the sweeping Trump worldwide tariff has started biting the US economy – higher inflation, lower income, lower consumption and investment, and higher jobless rate.

Higher Inflation. The July consumer price index (CPI) rose 2.7 percent, 0.2 percentage points higher than June, and the core index – excluding energy and food – rose 3.1 percent, 0.3 percentage points higher. Producer price index (PPI) rose sharply by 3.3 percent in July, compared to 2.3 percent in June, the highest month-to-month rise in six months. The FED mandate, stipulated by the federal law, sets a strict rate policy of 2-percent inflation target rate with rate hikes when the inflation rate moves well over 2 percent, and rate cuts when it falls to 2 percent or approaching steadily towards that range. The recent trend shows inflation on the rise, with no support for a FED rate cut. 

The July CPI and PPI data is only the tip of the iceberg, caused by Trump's "reciprocal" tariff in April. The Trump Administration fixed the final“reciprocal”tariff rates on over 100 trading partners worldwide, ranging from 15 percent to 50 percent, effective August 7, 2025. According to a US government report, the current tariff rate facing consumers is 18.3 percent, the highest since 1934. The after consumption shift rate is 17.3 percent, the highest since 1935.

A Goldman Sachs report found that only 14 percent of the tariff bill is paid by foreign exporters, and the other 86 percent will be passed on to the price of imports, with American consumers paying 22 percent and American businesses paying 64 percent. Hence, a general inflation rise is inevitable. A government report has also found that the tariff will lead to a 1.8-percent price rise in 2025, or an extra burden of $2400 per American family. The tariff pass-on cost will lead to 40 percent retail price rise for apparel and textiles, 38 percent for shoes, etc..

Higher prices and lower income have led to lower consumption. Personal consumption expenditure grew by a mere 0.1 percent in Q1, 2025.

The Michigan University consumer confidence index fell to 58.6 in August from 61.7 in July. The report also found that American consumer's inflation anticipation has risen to 4.9 percent, compared to 4.5 percent in July.

Tariffs have also dampened capital investment and production. Fixed investment grew by only 0.4 percent in Q2, 2025. The latest report by the US Congress Joint Economic Commission found that the“reciprocal”tariff will lead to a 13 percent fall in manufacturing investment per year, or a total loss of $490 billion by 2029, although, ironically, the claimed purpose of the tariff is to bring manufacturing back to America. The report also found that the manufacturing sector has shed 37,000 jobs since the "reciprocal" tariff was announced in April, instead of "protecting American jobs." Optimism in the manufacturing sector has fallen to the lowest since the peak of the Covid-19 pandemic. The Chicago ISM purchasing managers' index fell into contraction territory (below 50) for the past three months, coming in at 48.0 in July.

It has hit employment as well. The US Labor Statistics Bureau's data show that newly added non-farm payrolls were only 19,000 in May, 14,000 in June, and 73,000 in July, leading to a 0.1-percent rise in the jobless rate, to 4.2 percent in July. A government report estimated that the US jobless rate will rise 0.3 percentage points by the end of 2025 and 0.7 percentage points by the end of 2026.

American economic growth is apparently slowing down. Although its Q2 GDP growth rate hit 3.0 percent annually, the predominant contributor is a sharp fall in imports after a frenzied stockpiling in Q1. The imports contributed 5.18 percentage points to GDP growth. The economic fundamentals – personal consumption and fixed investment combined – contributed to 2.6 percent to GDP growth in 2024, 1.62 percentage points in Q1, 2025 and 1.06 percentage points in Q2, 2025, showing a clear downward baseline. The latest IMF World Economic Outlook in July estimated US GDP growth to slow to 1.9 percent in 2025, compared to 2.8 percent in 2024, and will stay virtually the same in 2026 (2.0 percent).

The worldwide "reciprocal tariff," no matter how Donald Trump and his team boast as a "resounding success," is in fact a self-pay game. The adverse effect will evolve to be apparent as soon as Q4 2025. The world economy will suffer, but the American economy will suffer more. In conclusion, the cure for rising inflation and a slowing economy in America is a change in tariff, not a change in FED mandate.