Jerome H. Powell, the chair of the Federal Reserve, signaled further room for the central bank to lower borrowing costs this year to shore up the labor market despite the recent re-acceleration in inflation.
Mr. Powell, speaking on Tuesday at an event hosted by the National Association for Business Economics, deviated little from his recent message that the Fed should be responsive to the slowdown in monthly jobs growth and other signs of softness across the labor market.
While he conceded that economic activity was on a “somewhat firmer trajectory than expected,” Mr. Powell stressed that “the downside risks to employment appear to have risen.”
That suggests the central bank is likely to proceed with additional cuts at its two remaining meetings this year, one on Oct. 28-29 and another in December.
Mr. Powell indicated an inclination to continue lowering interest rates despite the fact that the government shutdown is delaying crucial data releases, including September’s jobs report.
The Bureau of Labor Statistics said last week that it would be calling back some employees to produce the Consumer Price Index for September, which was initially set to be released on Wednesday. It will now be published on Oct. 24, meaning Fed officials will have it in hand before they vote on interest rates. Data collection for future reports, as well as the release of other data, will restart only once lawmakers reach an agreement to fund the government.
The Fed chair on Tuesday acknowledged that the central bank was missing “important” data but said officials “routinely review a wide variety of public- and private-sector data that have remained available.” He also highlighted other sources of information the Fed collects, including “a nationwide network of contacts,” who he said provide “valuable insights.”
The lapse in official government statistics complicates what is already a difficult moment for the Fed, which is grappling with what Mr. Powell has previously described as a “no risk-free path.” He reiterated that challenge on Tuesday, noting that there was “tension between our employment and inflation goals.”
The concern is that taking steps to protect the labor market could risk making the recent setback in inflation worse, while a move to tame price pressures could cause undue harm to the economy.
Mr. Powell is among several policymakers at the Fed to view the recent resurgence in inflation as a temporary phenomenon. That stance rests on the assumption that President Trump’s tariffs will result in a one-time increase in prices across a raft of consumer goods, such as food and furniture. Those increases may take time to filter across the economy, Mr. Powell has conceded, but he expects the impact to fade.
Other proponents of that view include John C. Williams, president of the Federal Reserve Bank of New York. In an interview last week, Mr. Williams, who is a permanent voter on the policy-setting committee, said he did not see “any signs of second-round effects or factors that could be amplifying the effects of tariffs on inflation.” Rather, he said that there were “more downside risks to the labor market and employment, and that is something that takes some of the upside risk off of inflation.”
But other officials at the Fed are weighing the risks differently, expressing greater concern about the outlook for inflation even before the latest round of tariff threats from Mr. Trump. Last week, the president vowed to impose 100 percent tariffs on all products from China if Beijing did not ease controls on rare earth minerals. That would come on top of broad-based levies on imports from dozens of countries that were imposed on Aug. 7 and other tariffs on specific products like household furnishings and cars.
Minutes from the most recent Fed meeting underscored the divisions between policymakers, with some officials reluctant to support September’s quarter-point cut.
Beyond the economic outlook, Mr. Powell spoke at length about the Fed’s roughly $7 trillion balance sheet and its use of large-scale asset purchases in the past to support the economy in times of crisis. Treasury Secretary Scott Bessent recently seized on these tools, saying that they caused “severe distortions in the market,” worsened inequality and even undermined the Fed’s own political independence.
Mr. Powell on Tuesday conceded that the Fed should have moved more quickly to end its purchases of government securities in the aftermath of the Covid-era financial shock and that officials should be “more nimble in our use of the balance sheet.”
The Fed is currently in the process of shrinking the size of the balance sheet, which Mr. Powell said was in keeping with a “deliberately cautious” plan, given signs that measures tracking the amount of cash in the banking system were starting to show evidence of “gradually tightening.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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