Inflation Threat Looms: Powell Signals Fed’s Vigilance
Federal Reserve Chair Jerome Powell has put markets on notice, stating that the central bank faces a “challenging situation” as it balances the dual risks of a possible inflation rebound and a softening labor market. Speaking at an economics forum, Powell reiterated that the Fed’s current interest rate policy is “modestly restrictive,” a position that provides flexibility to address either threat without rushing into aggressive action.
The Fed chair emphasized that the central bank’s commitment to price stability remains paramount. “We can’t leave that part of the goal unguarded,” Powell stated, acknowledging that while recent price spikes from tariffs might be temporary, the path of inflation remains uncertain. This ongoing vigilance explains why the Fed has taken a deliberate, cautious approach to easing monetary policy.
The remarks follow the Fed’s first interest rate reduction since December, a move that has fueled market speculation. Futures markets are now pricing in expectations for two more quarter-point cuts by the end of the year, which would bring the benchmark lending rate to its lowest point since late 2022. However, consensus among policymakers is far from unified.
A Divided Committee
The path forward has exposed a clear divide within the Federal Reserve. Vice Chair Michelle Bowman is among those pushing for a faster pace of cuts, citing “materially more fragile” labor-market data and warning that the Fed may already be “behind the curve” in addressing deteriorating conditions. Echoing this view, Governor Stephen Miran, on leave from his role as a Trump economic adviser, argued that monetary policy is “very restrictive” and should be lowered by nearly two percentage points, a move that would require the kind of half-point cuts typically reserved for periods of economic crisis.
On the other side of the debate, officials are urging patience. Chicago Fed President Austan Goolsbee highlighted that inflation has been above the 2% target for over four years and could still rise. He cautioned against getting “overly up-front aggressive” with cuts, suggesting a more gradual approach is necessary to tackle stubborn price pressures. Atlanta Fed President Raphael Bostic shared this sentiment, asserting that the “risk to the price-stability mandate is still the most significant.”
The Road Ahead
The next critical piece of data will be the August Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, due for release this Friday. The July data showed the annual rate holding at 2.6%. The upcoming report could sway the central bank’s next move. For now, Powell is maintaining a measured stance, telling the audience that the “two-sided risks mean that there is no risk-free path” for U.S. monetary policy.
Published on 29/09/2025
By Nicholas.