Powell Just Shifted the Fed’s Compass: From Inflation First to Jobs First

This morning, 8/22/25, at Jackson Hole, Fed Chair Jerome Powell signaled a major shift in the Fed’s approach. After months of putting inflation front and center, Powell now openly acknowledges growing risks in the labor market. He put it plainly: “Risks to inflation are tilted to the upside, and risks to employment to the downside, a challenging situation.”

What does this mean? The Fed’s focus isn’t just on fighting inflation anymore. Powell’s message is clear: protecting jobs is now just as important. This recalibration is a sign that the Fed is ready to act if economic softness starts to threaten employment, even if inflation hasn’t fully cooled off.

Markets got the message, two-year Treasury yields dropped, and U.S. stocks rallied.