Inflation Still Elevated, Labor Market Weakening, Jerome Powell Says After Fed Cut
Federal Reserve Chair Jerome Powell addressed the press following the Federal Open Market Committee’s (FOMC) decision to reduce its policy rate by 0.25 percentage points, citing a more fragile balance between inflation and employment risks.
Powell emphasized that the Fed remains firmly committed to its dual mandate of price stability and maximum employment, noting that inflation has risen again and “remains elevated.” While the central bank sees disinflation continuing in parts of the services sector, Powell acknowledged that near-term risks tilt in a difficult direction: inflation risks lean upward while labor market risks are moving downward.
The Fed also confirmed it will continue to reduce its securities holdings, reinforcing its tightening stance despite the rate cut. Powell described the U.S. economy as growing at a moderate pace, slowed by weaker consumption. GDP expanded by 1.5% in the first half of 2025, down from 2.5% last year.
The labor market, once described as “solid,” has clearly softened. Powell highlighted revised job figures showing employment growth now running below the breakeven rate. Wage growth still outpaces inflation, but overall labor demand has cooled, job creation is slipping, and the participation rate has been pressured by slowing immigration. “Both labor supply and demand have come down sharply,” Powell said, adding that the decline in the growth of the labor force is contributing to the slowdown.
Unemployment has remained little changed over the past year, but Powell warned that the downside risks to jobs have increased. “The labor market is less dynamic, somewhat softer,” he noted, pointing to weak housing activity and a slowdown in hiring momentum.
The Fed’s latest projections show the median participant expects rates to stand at 3.6% by year-end, a path reflecting gradual easing but not the larger cut some policymakers had wanted. Powell confirmed that while a few members argued for a 0.5% reduction, there was not broad support for such a move. He described the decision as a “risk management cut,” aimed at steering policy toward neutral as labor risks build.
Tariffs also factored into the discussion. Powell said it is “certainly possible” that trade duties are weighing on the labor market, and he expects the inflationary impact of tariffs to continue building in the near term. The base case, however, remains that these effects will be temporary. Still, Powell acknowledged that the risk of persistent inflation needs careful management.
Despite the difficult trade-offs, Powell underscored the Fed’s independence and commitment to its long-term objectives. “We remain focused on our dual mandate goals for the benefit of the American people,” he said, while reiterating that the institution will not shy away from tough policy choices even in a politically charged environment.
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