Despite Dual Threats, Powell Reiterates There is No Risk Free Path for the Fed

Federal Reserve Chair Jerome Powell cautioned that both the labor market and inflation face meaningful risks, underscoring the difficult decisions policymakers must make as they consider whether to move forward with more interest-rate cuts.

‍

“Near-term risks to inflation remain skewed upward, while risks to employment lean downward a difficult combination,” Powell said Tuesday in remarks prepared for the Greater Providence Chamber of Commerce in Rhode Island. “When risks pull in both directions, there is no option without trade-offs.”

‍

Notably, Powell avoided signaling whether he would support another rate cut at the Fed’s upcoming October meeting.

‍

His comments echoed those made during a Sept. 17 press conference after the Fed delivered its first rate reduction of 2025, lowering the benchmark rate to a 4%-4.25% range. At that time, Powell described the move as a “risk-management cut,” aimed at cushioning the economy amid growing signs of stress in the labor market.

‍

Recent data and revisions have highlighted a pronounced slowdown in job creation, a trend Fed officials are still working to interpret. The task has been further complicated by declining labor supply, linked in part to President Donald Trump’s stricter immigration enforcement.

‍

“We’ve seen a clear slowing on both the supply and demand side of the labor market a rare and challenging shift,” Powell noted. “In a labor market that has lost some of its dynamism, the downside risks to jobs have increased.”

‍

At the same time, Powell stressed that the Fed cannot ignore inflationary risks tied to Trump’s trade policies. He said tariff hikes are likely to ripple gradually through supply chains, creating a one-off boost to price levels that could extend over several quarters. Goods costs, he added, are already fueling a rebound in inflation.

‍

“Data and surveys suggest these increases are primarily the result of higher tariffs, not a broader surge in price pressures,” Powell explained.

‍

The policy path ahead remains uncertain, with Fed officials split on how aggressively to move. According to the latest quarterly projections released after last week’s meeting, the median forecast pointed to two additional quarter-point cuts before year-end.

‍

Still, several policymakers indicated they expect either one more cut or none at all in 2025. With inflation still above the Fed’s 2% target, some continue to push for a cautious pace on easing.

‍

Others, however, are emphasizing the risks in the labor market. Earlier Tuesday, Fed Governor Michelle Bowman argued that policymakers should cut rates more decisively to prevent further deterioration in employment, warning that waiting too long could leave the Fed behind the curve. Meanwhile, Stephen Miran, the newest Fed governor, has broken with the majority by calling for substantial cuts through the rest of the year.

‍

Both Bowman and Miran were appointed by Trump, who has applied intense pressure on Powell and the Fed to slash rates more aggressively. Trump has also taken the extraordinary step of moving to dismiss Fed Governor Lisa Cook, an unprecedented action that has set up a looming Supreme Court case over the central bank’s independence from political interference.

‍

Powell also reflected on the long-lasting effects of recent economic crises. He pointed to the 2008-09 financial meltdown and the Covid-19 pandemic as events that left deep marks on both the economy and public trust in institutions.

‍

“In democracies around the globe, confidence in economic and political systems has been tested,” Powell said. “For those of us in public service, the responsibility now is to stay focused on our core mission and carry it out with the highest commitment, even as we navigate turbulent waters and strong crosscurrents.”

‍

Powell’s latest remarks highlight the Federal Reserve’s delicate balancing act. On one hand, a cooling labor market is raising pressure for deeper rate cuts to safeguard jobs. On the other, tariffs and persistent inflation risks make policymakers wary of moving too quickly.

‍

With Fed officials split on the best course of action, investors should brace for an uncertain policy environment in the months ahead. Powell’s reminder that “there is no risk-free path” underscores just how challenging the road forward may be for both the central bank and the U.S. economy.

‍