JACKSON HOLE, Wyoming (Reuters) -Federal Reserve Chair Jerome Powell on Friday pointed to a possible interest rate cut at the U.S. central bank's meeting next month, telling the Fed's annual Jackson Hole conference risks to the job market were rising but also noting inflation remained a threat and that a decision wasn't set in stone.

While not nearly as explicit as his comments at the same venue last year - then, with the weakening job market clearly on display, he said the time had come to cut rates - investors took the hint and ran with it, bumping up market pricing on bets on a reduction to the Fed's policy rate at its September 16-17 meeting.

A number of analysts, including those at Deutsche Bank and LH Meyer, tore up previous forecasts that the Fed would wait until December to cut rates, and now expect two quarter-point rate cuts from the current 4.25%-4.50% range before year end. 

"The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance," Powell told international economists and policymakers at the Fed's annual conference in Wyoming in a speech that was also livestreamed online. "Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."

Powell's comments put heavy weight on the monthly employment and inflation reports that will be received before next month's meeting. The nonfarm payrolls report for August is due to be released on September 5, with data on consumer and producer prices due the following week. The July job-market report showed job gains from May to July had plummeted to a monthly average of 35,000, though the unemployment rate was a still-low 4.2%.

"While the labor market appears to be 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. And if those risks materialize, they can do so quickly," the Fed chief said, noting that while tariffs are expected to drive prices higher, the baseline case is for their impact on inflation to fade.

"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."

U.S. stocks rose after the remarks, and traders assigned about an 85% probability that the Fed would deliver a quarter-percentage-point rate cut next month, up from about 75% earlier in the day. Market bets also strongly favor a second rate cut in December. U.S. Treasury yields dropped and the dollar slid. 

"Chair Powell came in more dovish than expected," said Thomas Hayes, chairman of Great Hill Capital LLC. "He has set the table to move in September. The only thing that could derail that would be an excessively strong jobs report in the first week of September, but based on the trends that we're seeing on a weekly basis and the revisions, that is unlikely."

TRUMP PRESSURE CAMPAIGN

Powell's remarks offered little explicit guidance about how soon or how quickly rates might continue to move lower, likely stoking further pressure from President Donald Trump, who contends there is no risk of inflation and that the Fed should slash rates immediately.

Trump has been pressuring the Fed with calls for Powell to resign, and broadened that campaign this week with demands that Fed Governor Lisa Cook also leave her position.

As Powell delivered his remarks, Trump said in a post on his Truth Social media platform that he would fire Cook if she does not resign from the central bank. No president has ever fired a Fed governor, a position long understood to be only subject to removal "for cause," meaning malfeasance.

The Department of Justice, after a referral from the Trump administration, has opened an investigation into alleged misstatements about her mortgages on two properties. Cook, who is attending the Jackson Hole conference, has said she won't be bullied into resigning. 

Even as the political maelstrom threatened to overshadow the conference, the nuts and bolts of the policy debate underway at the Fed were on full display, both in Powell's speech and in remarks by policymakers at the event signaling they may balk at a near-term rate cut.

Its host, Kansas City Fed President Jeffrey Schmid, and the also hawkish Cleveland Fed chief Beth Hammack said in TV interviews against the backdrop of the Grand Teton range that they remain wary about cutting while inflation was still above target and not looking on a trajectory to get there soon.

Other policymakers in attendance, including Governor Christopher Waller argue the impact of the tariffs will be modest and short-lived, and that rate cuts are warranted now to protect a weakening job market. Waller is on a list of possible Powell replacements.

Powell's remarks bent toward Waller's view, also embraced in recent weeks by policymakers such as San Francisco Fed President Mary Daly, who has called for a "recalibration" of interest rates to account for rising risks of a faltering labor market.

Powell received a standing ovation as he began his remarks, a coda to eight years which began and ended with withering criticism from Trump, who nominated the former investment banker to lead the Fed during his first term but quickly soured over Powell's unwillingness to keep monetary policy as loose as the president wanted. The Trump administration is both searching for a replacement and pressuring Powell and other members of the Fed's Board of Governors to resign in hopes of appointing a majority of the seven-member body.

The Fed chief cannot be removed over disputes about interest rate decisions. Powell, who was appointed to a second term in the top Fed job by former President Joe Biden, has said he intends to continue leading the central bank until his term expires next May. 

Alongside his update on the economy, Powell released a new Fed strategic framework that emphasized that the central bank's maximum employment mandate hinges on price stability.

The Fed cut interest rates by a full percentage point in the last few months of 2024. It has kept its benchmark interest rate steady since December, when officials began grappling with the likely impact the incoming Trump administration's policies might have on inflation, which remains above the central bank's 2% target and is projected to rise as new import tariffs work their way into consumer prices.

Economic data since the Fed's last meeting have pulled officials in both directions ahead of the meeting next month, which will include new quarterly economic projections from policymakers who as of June anticipated the need for two quarter-percentage-point rate cuts this year.