Federal Reserve Chair Jerome Powell pointed to a weakening labor market and economic outlook alongside elevated prices in his remarks Tuesday afternoon, a combination that puts policymakers in a tough position.
“Near-term risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation,” he said at an event hosted by the Greater Providence Chamber of Commerce. “Two-sided risks mean that there is no risk-free path.”
When asked about markets, Powell commented that the Fed does look at overall financial conditions, and noted stock values appeared to be elevated.
“By many measures, for example, equity prices are fairly highly valued.” He added that it is not, however, “a time of elevated financial stability risks.”
His address comes one week after the central bank approved its first interest-rate cut of 2025.
Recent data show economic growth moderating, Powell said, adding that the unemployment rate, while still low, has edged up. Housing data remains weak, he added, and there has been a slowdown in consumer spending. At the same time, inflation remains elevated above the Fed’s 2% goal.
The situation is what Joe Brusuelas, chief economist at RSM US, refers to as “stagflation-lite,” an unfortunate situation where the economy wavers while prices remain high.
Shifting federal policy has created structural changes to the economy that make it difficult to predict what comes next, Powell said. Currently, “the U.S. economy is showing resilience in the midst of substantial changes in trade and immigration policies, as well as in fiscal, regulatory and geopolitical arenas,” he said.
Powell warned: “These policies are still emerging, and their longer-term implications will take some time to be seen.”
Powell offered few clues in his remarks about what the Fed will decide at its October policy meeting. “Our policy is not on a preset course,” he said. “We will continue to determine the appropriate stance based on the incoming data, the evolving outlook, and the balance of risks.”
At his press conference last week, Powell made clear the rate cut shouldn’t be interpreted by markets as the start of aggressive easing.
“You could think of this in a way as a risk management cut,” he said at the time, signaling that further moves would be cautious and data-dependent.
That cautious stance showed up in the Fed’s own projections.
The updated dot-plot forecasts three cuts in 2025, up from two in June. However, there is deep uncertainty among policymakers. The median forecast masks a razor-thin 10-9 split among the 19 participants over how deep to cut, suggesting little consensus about the path ahead.
Powell also reinforced on Tuesday that the central bank wouldn’t be swayed by political pressure, emphasizing the Fed is “never, ever thinking about political things.”
Many people, he said “don’t believe us…but the truth is most of the people who are calling us political, it’s just a cheap shot.”
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