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Investing.com -- Federal Reserve Chair Jerome Powell acknowledged Tuesday that the central bank faces a challenging balancing act with "no risk-free path" as it navigates competing risks to inflation and employment.
Speaking at the Greater Providence Chamber of Commerce 2025 Economic Outlook Luncheon in Warwick, Rhode Island, Powell noted that recent economic data shows moderated growth, with GDP rising at approximately 1.5 percent in the first half of the year, down from 2.5 percent growth last year.
The labor market has experienced "a marked slowing in both the supply of and demand for workers," which Powell described as "an unusual and challenging development." The unemployment rate edged up to 4.3 percent in August, while payroll job gains slowed sharply over summer months, averaging just 29,000 per month over the past three months.
Powell highlighted that inflation remains "somewhat elevated" relative to the Fed’s 2 percent goal. Total PCE prices rose 2.7 percent over the 12 months ending in August, up from 2.3 percent a year earlier. Core PCE prices, excluding food and energy, increased 2.9 percent last month, also higher than the year-ago level.
The Fed chair attributed recent price increases largely to higher tariffs rather than broader price pressures, suggesting tariff-related effects on inflation will likely be "relatively short lived" as a one-time shift in price levels spread over several quarters.
Addressing the Fed’s recent policy decision, Powell explained that "increased downside risks to employment have shifted the balance of risks," prompting the central bank to lower the target range for the federal funds rate by 25 basis points to 4 to 4.25 percent at its last meeting.
"If we ease too aggressively, we could leave the inflation job unfinished," Powell warned. "If we maintain restrictive policy too long, the labor market could soften unnecessarily."
Powell emphasized that Fed policy "is not on a preset course" and that the central bank remains "committed to supporting maximum employment and bringing inflation sustainably to our 2 percent goal."