Washington DC - Federal Reserve Chair Jerome Powell left the door open to cutting interest rates in a widely watched speech Friday, although he warned that risks of higher inflation and a weakening jobs market mean a "challenging situation."

"Downside risks to employment are rising," Powell said, according to a copy of his prepared remarks at the Jackson Hole Economic Policy Symposium.

This is his last such speech at the helm of the Fed, and investors are keeping a keen eye out for signs of where interest rates could be headed.

For now, Powell walks a tightrope in balancing the chances that President Donald Trump's sweeping tariffs could fuel persistent inflation alongside those that the jobs market could weaken rapidly. He is also working while under a barrage of criticism from the Republican president.

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"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," the central bank chief noted.

He added that "the effects of tariffs on consumer prices are now clearly visible" and expected to accumulate over the coming months.

There is high uncertainty, he believes, about the timing and amounts of the tariffs' effects.

"We will not allow a one-time increase in the price level to become an ongoing inflation problem," he said.