No easy route for the fed
Federal Reserve Chairman Jerome Powell painted a gloomy picture on Tuesday, describing the economy today as “a tough situation.” Speaking to an audience in Rhode Island, Powell indicated that the Fed has “no risk-free path” ahead, as it tries to navigate rising inflation and a softening labor market simultaneously.
“Two-sided risks mean there is no risk-free path,” Powell said, using the same tone of caution he employed last week after the Fed cut interest rates by 25 basis points. Officials now anticipate potentially two more quarter-point cuts before the end of the year—but nothing is guaranteed.
Balancing act under pressure
Powell is in an awkward position. He has to hold the Fed together while managing competing priorities. Some members of the policy-setting committee are recommending deeper cuts to help the labor market, while others warn that cutting too rapidly will spark inflation again. On top of this, the White House is openly pushing the Fed to move more swiftly to lower rates.
Freshly minted Fed governor Stephen Miran has voiced firm support for a bigger cut. Speaking Monday, he said 4% to 4.25% levels are too restrictive and will likely spur job losses. Miran, the sole holdout last week in reducing the rate, would have wished for a 50-basis-point cut instead of the quarter-point reduction the Fed approved.
Caution in a deteriorating job market
Evidence of a faltering labor market did contribute to last week’s modest rate cut, however, and most officials remain wary of moving too quickly. St. Louis Federal Reserve President Alberto Musalem referred to the previous cut as a “precautionary move” to shield against rising unemployment, but warned additional cuts would push inflation higher.
Atlanta Fed President Raphael Bostic supported this view in an interview with the Wall Street Journal, saying that inflation concerns would hold him back from another reduction in October. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures measure, stands at 2.9%, above the central bank’s 2% goal. Next week’s reading, which incorporates August data, will be released on Friday and will probably inform the Fed’s next move.
The political balancing act
Powell avoided multiple public comments by President Donald Trump, who has faulted the Fed for not lowering rates rapidly enough. The autonomy of the Fed guarantees that policymakers tend to avoid directly responding to political pressure, although it looms over the decision-making process.
Trims through this context aren’t simply an economic issue—it’s a balance beam to straddle between the Fed’s two mandates: maximum employment and price stability. When the job market is slowing but still elevated above target inflation, each decision has potential risks on both sides.
Looking ahead
While Americans wait for what the Federal Reserve will do next, Powell’s message is straightforward: there are no simple solutions. Investors, businesses, and families alike will be holding their breath as the Fed sorts out its course of action in an economy far from certain.
