Powell Reiterates No Risk-Free Path For Fed Amid Dual Threats

Federal Reserve Chair Jerome Powell said the outlooks for the labor market and inflation face risks, reiterating his view that policymakers likely have a difficult road ahead as they weigh further interest-rate cuts.

“Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation,” Powell said Tuesday in remarks to the Greater Providence Chamber of Commerce in Rhode Island. “Two-sided risks mean that there is no risk-free path.”

Powell offered no hints on whether he might support a rate cut at the Fed’s next meeting, in October.

He did, however, address the tense political environment surrounding the Fed during a question and answer session following his speech, and denied accusations the central bank has acted politically in its policy decisions.

“We’re looking at what’s the best thing for the people that we serve,” he said. “Truth is mostly people who are calling us political — it’s just a cheap shot.”

President Donald Trump — in addition to pressuring the Fed for lower interest rates — has been among Republicans who have accused Powell of making rate decisionsthat favored Democrats.

Powell’s prepared remarks hewed closely to those he made in a press conference on Sept. 17 after Fed policymakers lowered the central bank’s benchmark interest rate to a range of 4%-4.25%, the first reduction of 2025. Powell at the press conference described the move as a “risk-management cut” aimed at responding to growing warning signs in the labor market. 

Recent data, along with revisions to previous figures, have pointed to a sharp slowdown in job creation that officials are trying to assess. That process has been complicated by a pullback in labor supply amid President Donald Trump’s stepped-up immigration enforcement policies. 

"There has been a marked slowing in both the supply of and demand for workers — an unusual and challenging development,” Powell said. “In this less dynamic and somewhat softer labor market, the downside risks to employment have risen."

Still, Powell on Tuesday continued to argue the Fed must remain attentive to the possibility that Trump’s tariffs lead to persistent inflationary effects. 

He said recent price increases were largely being driven by tariffs, but he continued to expect that would be a "one-time" effect.

"Powell wasn’t as dovish as markets were probably hoping for, somewhat mirroring his tone at last week’s press conference," Oren Klachkin, an economist at Nationwide, said in a note after the speech. "But he still sees tariffs as a one-time adjustment to the price level, which should give him the green light to continue easing."

The challenge ahead for Fed policymakers is reflected in the wide range of views among officials over the best path for interest rates. In updated quarterly projections released following last week’s meeting, policymakers penciled in two additional quarter-point cuts this year, according to the median estimate. 

But several also saw one additional or no more cuts in 2025. Some policymakers have continued to advocate for a cautious approach to further rate cuts, given that inflation remains above the Fed’s 2% target.

Others have placed greater emphasis on the labor market. Earlier Tuesday, Fed Governor Michelle Bowman said officials should act decisively to bring down interest rates as the labor market weakens and warned policymakers are in danger of falling behind the curve. Stephen Miran, the newest member of the Fed’s Board of Governors, has taken an outlier view among policymakers by calling for steep cuts over the remainder of this year.

Trump, who appointed both Bowman and Miran to the Fed’s board, has applied intense pressure on Powell and the Fed to lower rates drastically. The president has also moved to fire Fed Governor Lisa Cook. That’s an unprecedented step that has set the stage for a consequential ruling from the Supreme Court, with implications for the central bank’s ability to set monetary policy free of political influence. 

Powell on Tuesday said the 2008-09 financial crisis and Covid-19 pandemic had left scars “that will be with us for a long time.”

“In democracies around the world, public trust in economic and political institutions has been challenged,” he said. “Those of us who are in public service at this time need to focus tightly on carrying out our critical missions to the best of our ability in the midst of stormy seas and powerful crosswinds.”