Powell’s ‘unusual’ Jackson Hole remarks reveal he’s boxed in by Trump’s tariffs and deportations, risking a 1970s-style mistake, economist Slok says

Economy·Federal ReservePowell’s ‘unusual’ Jackson Hole remarks reveal he’s boxed in by Trump’s tariffs and deportations, risking a 1970s-style mistake, economist Slok saysBy Eva RoytburgBy Eva RoytburgFellow, NewsEva RoytburgFellow, NewsEva is a fellow on Fortune's news desk.SEE FULL BIO Fed Chair Jerome Powell noted the labor are in a “curious kind of balance.”David Paul Morris—Bloomberg/Getty ImagesTorsten Slok, chief economist at Apollo Global Management, said Jerome Powell’s choice of words at Jackson Hole—saying the labor market is in a “curious kind of balance”—was a signal that the Fed sees structural distortions from tariffs and deportations

Federal Reserve Chair Jerome Powell used some very un-Powell- language at Jackson Hole on Friday, and to Torsten Slok, chief economist at Apollo Global Management, that was a red flag

Powell noted that while labor remain in balance, it is a “curious kind of balance that results from a marked slowing in both the supply of and demand for workers.” “This unusual situation suggests that downside risks to employment are rising,” he added. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”Slok told Fortune in an interview immediately after the speech that this type of language was “puzzling.” “Including the word ‘curious’—I mean, that’s just a somewhat unusual expression,” Slok remarked. rejoiced at the slight hint Powell gave that he would cut interest rates at the next Fed meeting

However, Slok argued the speech signals that Powell sees something deeper happening in the job market: deportations and immigration crackdowns warping labor supply

And in his view, that could make inflation harder to tame

A Fed cornered by Powell’s speech threaded the needle between two forces: slowing growth and stubbornly high inflation

On one side, he acknowledged a cooling labor market and rising recession risk, but on the other, he flagged tariffs and a weakening dollar as potential new inflation drivers.Slok added that Powell is now ly putting more weight on the labor market slowing, but also left the door open to see what the August employment report will say.“So it was a very two-handed speech, but still tilting towards focusing on the worries that the labor market has been slowing down,” Slok said

But he added Powell was blunt what could go wrong: tariffs and trade wars. “It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed,” Powell warned in his prepared remarks

Slok said that risk is real, and that tariffs will have a “bigger” impact on inflation than we’ve seen so far. “If you look at this earnings season, we’ve had a number of companies, including Tesla, saying that prices of their ducts are going up,” Slok said. “So I do think that it’s justified, from a Fed perspective, to worry the upside risk to inflation.” Deportations as an inflationary shock Slok went further, saying Powell’s “curious kind of balance” line ly reflects the impact of mass deportations

The removal of workers, he argued, is pushing up wages in industries agriculture, construction, and hospitality

That would “of course” have consequences for not only labor demand, but labor supply

The result, he said, is inflationary pressure: “So if you lower the labor supply, it really is the same impulse to the economy as tariffs

Tariffs result in higher inflation and lower GDP

Deportations … will also result in lower employment growth and more inflation, especially wage inflation.” Slok warned that Powell may be sleepwalking into a classic “stop-go” trap

That forced policymakers to slam rates back up, tipping the U.S. into repeated recessions and damaging the Fed’s credibility for years. “The risk today is we could see that same dynamic repeat,” Slok said

If inflation starts climbing again after a rate cut, “the Fed will have to reverse course—and in the worst case, start hiking again.” Back then, political pressure played a decisive role

Today, President Donald Trump’s push for aggressive rate cuts and his trade war have put Powell in a strikingly similar bind

Powell is forced to balance political demands for looser policy against the Fed’s dual mandate of maintaining price stability and maximum employment

The bottom line Slok was careful to note that Powell’s speechwriters ly aren’t drafting with Trump in mind

Still, he admitted, the political overlay is unavoidable

With tariffs and deportations ing inflation from one side, and a weakening economy pulling the other way, Powell’s choice set is narrowing. “Both tariffs and deportations result in the same impact on the economy, namely higher inflation and slower GDP growth

And that happens to be exactly what the consensus is expecting at the moment,” Slok said

At Jackson Hole, Powell described that position as a “curious” balance

But for Slok, it looks more a trap

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