Jerome H. Powell, the chair of the Federal Reserve, on Tuesday underscored the “challenging situation” confronting the central bank as its officials debate how quickly to lower interest rates without either stoking inflation or worsening a weakening labor market.
“Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation,” Mr. Powell said in a speech at an event in Rhode Island. “Two-sided risks mean that there is no risk-free path.”
“If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation,” he added. “If we maintain restrictive policy too long, the labor market could soften unnecessarily.”
The Fed chair’s comments come on the heels of the central bank’s decision last week to lower interest rates for the first time this year to a new range of 4 percent to 4.25 percent. At the time, Mr. Powell called it a “risk management” move to protect the labor market.
On Tuesday, Mr. Powell described the Fed’s policy settings as still “modestly restrictive,” meaning interest rates at current levels are still helping to keep a lid on inflation. He stressed that the central bank was also “well positioned to respond to potential economic developments.”
Projections released alongside last week’s decision showed most Fed officials expected interest rates to decline another half a percentage point this year to a range of 3.5 percent to 3.75 percent. But there is a range of views among the Fed’s 19 policymakers about the path forward for interest rates — differences that stem from varying opinions on the health of the economy and the extent of the inflation threat posed by President Trump’s tariffs.
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