Powell: Fed faces double whammy amid rising inflation, weak labor market

Federal Reserve Chair Jerome Powell 

Federal Reserve Chair Jerome Powell said that the US economy is showing a degree of resilience despite major shifts in trade, immigration, and fiscal policies. However, he acknowledged that growth has slowed significantly and that inflation remains relatively high.

Speaking Tuesday before the Greater Providence Chamber of Commerce Forum in Rhode Island, Powell said the central bank decided at its most recent meeting to cut interest rates by 25 basis points, calling the move a step closer to a neutral level of monetary policy, though it still leans toward restrictive.

He noted that the unemployment rate rose slightly to 4.3% in August, while job creation slowed to an average of 29,000 jobs per month over the summer, a figure he said is below the level needed to maintain stable unemployment.

On inflation, Powell said the annual rate rose to 2.7% in August, up from 2.3% a year earlier, while core inflation climbed to 2.9%. He attributed the primary cause to recent tariffs imposed by the US administration, stating that their impact is "temporary" but could persist over several quarters.

Powell warned that the risks the Fed faces are now “dual in nature”: excessive easing may keep inflation elevated for longer, while excessive tightening could unnecessarily weaken the labor market.

He emphasized that monetary policy is not on a pre-set path, and the Fed will continue to adjust it based on incoming data and economic conditions.

Powell also reflected on the last two decades, during which the US faced two major global crises: the 2008 financial crisis and the COVID-19 pandemic in 2020. He said extraordinary monetary and fiscal policies helped avert catastrophic risks at those times.

However, he noted that these shocks have left long-term scars on public trust in economic and political institutions, adding that policymakers must now focus on delivering results with maximum efficiency.

In a notable remark, Powell said that labor market weakness has now overtaken inflation as the Fed’s top concern, and that the central bank’s current priority is protecting jobs, even with inflation still above the target level.