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Wall Street had one of its best days in months on Friday after Federal Reserve Chair Jerome Powell opened the door to monetary policy makers lowering interest rates. 

The Dow Jones Industrial Average climbed 845 points, or 1.9%, to close at 45,632, while the S&P 500 gained 97 points, or 1.5%. The tech-heavy Nasdaq Composite gained 396 points, or 1.9%.

In an annual address , Powell said Friday that current economic conditions "may warrant adjusting our policy stance."

Despite pressure from President Trump, the Fed has held off on cutting rates this year as it monitors the impact of Trump administration's tariffs on inflation and the labor market. Powell's speech on Friday, however, may be the strongest indication yet that policy changes could be afoot.

"With Powell acknowledging that it may be time for the Fed to alter its restrictive policy, this could set up stocks for a short-term relief rally," said Bret Kenwell, eToro investment analyst, in an email note on Friday.

"When Fed chairs open the door for a rate cut, it's quite difficult to close," Ryan Sweet, chief U.S. economist at Oxford Economics. "The August employment report or consumer price index are unlikely enough to change Powell's opinion."

The central bank is tasked with ensuring full employment and while keeping inflation in check — a tricky balance as lowering interest rates can boost job growth while causing inflation to rise, and vice versa. 

On Friday, Powell suggested that the balance was shifting toward bolstering the labor market. Job growth, he said, has "slowed considerably" and that the "downside risks to employment are rising." 

Job growth came in weaker than expected in July, with employers adding 73,000 jobs. The Labor Department also revised job growth  for May and June.

"Overall, 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," he said.

Inflation has remained in check this year, although it's still above the Fed's 2% target. Powell noted Friday that higher tariffs have begun to push up prices in certain categories. 

The Federal Open Market Committee, the central bank's 12-person interest rate-setting panel, is scheduled to meet next on Sept. 16-17. Traders now put the likelihood of a cut at 83%, to the CME Group's FedWatch Tool.