Powell noted that while labor markets 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.

Markets 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 politics

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 clearly 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 about 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 products are going up,” Slok said. “So I do think that it’s justified, from a Fed perspective, to worry about the upside risk to inflation.”

Deportations as an inflationary shock

Slok went further, saying Powell’s “curious kind of balance” line likely reflects the impact of mass deportations. The removal of workers, he argued, is pushing up wages in industries like agriculture, construction, and hospitality.

The administration has a goal of removing 3,000 undocumented immigrants a day, or 1 million each year, Slok noted. 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.

In the 1970s, the Fed cut interest rates too soon after an initial inflation spike, only to see prices surge again as oil shocks and wage demands rippled through the economy. 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. President Richard Nixon heavily pressured Fed Chair Arthur Burns to ease rates ahead of the 1972 election, a move historians blame for igniting the second wave of ’70s inflation. 

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 likely aren’t drafting with Trump in mind. Still, he admitted, the political overlay is unavoidable. With tariffs and deportations feeding 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 like a trap.