Powell Signals Labor Market Weakness Outweighs Inflation Concerns
PROVIDENCE, RI – Federal Reserve Chair Jerome Powell indicated Tuesday that a softening labor market is currently a greater concern for the central bank than persistent inflation, influencing last week’s decision to hold benchmark interest rates steady.
Speaking to business executives in Providence, Rhode Island, Powell acknowledged the Fed faces a delicate balancing act between its dual mandate of price stability and maximum employment. He described the current economic situation as one where “inflation risks in the short term and employment risks point down – this is a challenging situation,” adding, “Two-way risks mean there is no risk-free path.”
Powell highlighted a “significant slowdown” in both labor supply and demand. wage growth has decelerated, averaging 30,000 jobs added during the summer months, and revisions indicate roughly one million fewer jobs over the 12 months leading up to March 2025.
While inflation has fallen considerably from its 2022 peak of over 40 years, it remains above the fed’s 2% target.Powell anticipates Friday’s release of personal consumption prices data will show a 2.7% annual increase, wiht core inflation (excluding food and energy) at 2.9%.
Adding to the economic uncertainty are ongoing tariffs implemented by President Trump, with key deadlines for negotiations with China approaching in early November. Currently, Fed economists view these tariffs as causing a temporary price increase, a position Powell stated could be reevaluated.
“Uncertainty about the path of inflation remains high,” Powell said. “We carefully evaluate and manage the risk of higher and more durable inflation. We will ensure that a single rise in prices does not become a continuous inflation problem.”
the Federal Open Market Committee (FOMC) recently concluded its session with a closely divided 10-9 vote regarding the appropriateness of one or two additional quarterly interest rate cuts this year. The Fed has faced criticism from the White House and internal disagreements among officials under Powell’s leadership.
