Jerome Powell, the Chair of the U.S. Federal Reserve, addressed the media during a press conference on September 17, 2025, following the Federal Open Market Committee’s announcement regarding interest rate adjustments.
Elizabeth Frantz | Reuters
Federal Reserve Chair Jerome Powell announced on Tuesday that the ongoing vulnerability in the labor market is overshadowing persistent inflation concerns, which influenced his support for the decision to reduce the central bank’s primary interest rate last week.
This decision marked the first interest rate reduction of the year, made at a time when both the supply of and demand for labor have noticeably weakened alongside escalating inflation pressures stemming from recently implemented tariffs.
Powell emphasized the Fed’s responsibility to “balance both sides of our dual mandate,” which encompasses maintaining stable prices and fostering low unemployment, during his address to business leaders in Providence, R.I.
“The risks associated with inflation are leaning towards the upside, while the risks related to employment are tilted to the downside,” Powell explained. “This presents a challenging scenario where no solutions are without risk.”
The circumstances Powell detailed resemble the concept of stagflationācharacterized by slowing economic growth coupled with high inflation. Although the current scenario is not as dire as the stagflation episodes witnessed in the 1970s and early ’80s, it still presents a significant challenge for the Federal Reserve.
Powell expressed confidence in the Fed’s current approach, suggesting that further cuts might be necessary if the Federal Open Market Committee (FOMC) deems an even more accommodative stance is required.
“The growing risks to employment have shifted the risk balance concerning our objectives,” he stated. “Our current policy, which I view as still modestly restrictive, positions us well to respond to any potential economic changes.”
Following Powell’s remarks, the stock market showed little reaction, while Treasury yields decreased slightly.
Monitoring Employment and Inflation
Regarding the labor market, Powell noted a “marked slowdown” in both supply and demand. “In this less dynamic labor market, the risks to employment have escalated,” he remarked.
Indeed, payroll growth has dramatically decreased, with average jobs added dropping below 30,000 monthly over the summer. Furthermore, a recent revision of benchmark data indicated nearly one million fewer jobs created in the 12 months leading up to March 2025.
Simultaneously, inflation has cooled significantly since reaching a peak not seen in over 40 years in 2022; however, it remains significantly above the Fed’s target rate of 2%. Upcoming Commerce Department data is expected to show that personal consumption prices increased by 2.7% year-on-year for all items and 2.9% when food and energy are excluded, according to Powell.
Adding to the economic uncertainty is the ongoing impact of President Donald Trumpās tariffs, with negotiations continuing with major U.S. trading partners about these duties. A crucial deadline with China is approaching in early November. For the time being, Fed economists are interpreting the tariffs as a temporary factor contributing to rising prices, but this understanding might evolve.
“The uncertainty surrounding inflation trends remains significant,” Powell stated. “Our objective is to closely assess and manage the risks of higher, more persistent inflation, ensuring that this temporary rise in prices does not evolve into a lasting inflationary issue.”
Powell is currently navigating a Federal Reserve that has faced intense scrutiny from the White House and experiences a wide range of views among its officials. The FOMC meeting concluded with a narrow split of 10-9 regarding whether one or two further interest rate cuts would be appropriate within the year. Amid these discussions, Trump appointee Stephen Miran has advocated for a more aggressive approach, although his term is set to expire in January.
Earlier on Tuesday, Governor Michelle Bowman cautioned against the dangers of delaying responses to labor market issues. As another Trump appointee, Bowman stated, “We are at significant risk of being behind the curve in addressing deteriorating labor market conditions.” She further expressed concern about the potential for the labor market to enter a vulnerable phase, with significant risks tied to sudden shocks.
While Powell has avoided laying out his expectations for future rate adjustments, Bowman is optimistic that the recent reduction represents “the first step” toward returning to a neutral interest rate level.
