After the Fed cut interest rates by 25 basis points, Federal Reserve Chairman Powell said the monetary policy position was still slightly limited.
On September 23, local time, Powell said at an Economic Outlook meeting that the data showed that recent economic growth has slowed and unemployment has been low but slightly increasing. Employment growth has slowed, employment downside risks have increased, while inflation has risen and remains at a higher level, and the risk balance has changed significantly.
“Double risk means that there is no pathway to lowering interest rates at zero risk, too radical easing policies can lead to failure to meet inflation targets, and long-standing restrictive policies can lead to unnecessary weaknesses in the labour market,” Powell said.
Powell believes that rising downside risks to employment have tilted the risk balance, and it is appropriate for the Fed to shift to a more neutral policy stance at its last meeting. This policy stance remains slightly restrictive, allowing the Fed to better respond to potential economic developments.
In terms of outlook, Powell said inflation has dropped significantly from its 2022 high but is still slightly above the 2% target. Overall, short-term indicators of inflation expectations have risen this year under the influence of the Trump administration’s tariff policy.
Powell believes that the impact of major changes in trade, immigration, fiscal and regulatory policies on the economy as a whole remains to be seen. Though the impact of tariffs on inflation may be “unique,” it does not mean that it will be “sometimes.”
“Inflation uncertainty remains high,” Powell said.
In terms of the labor market, Powell believes that both the supply and demand of labor have slowed down significantly, which is an unusual and challenging trend. Against the backdrop of insufficient and slightly weak labor market vitality, the downside risk of employment has increased.
Powell also touched on the situation in financial markets. Stock prices are quite valued across multiple metrics, he said.
Data released by the U.S. Bureau of Labor Statistics showed that the U.S. CPI rose by 2.9% year-on-year in August, which was the same as market expectations of 2.9%, and the previous value was 2.7%; Core CPI rose by 3.1% year-on-year, which was the same as market expectations of 3.1%, and the previous value was 3.1%; The non-farm employment population increased by 22,000, compared with the expected 75,000, and the previous value of 73,000; The unemployment rate was 4.3%, expected to be 4.3%, and the previous value was 4.2%.
On September 17, local time, the Federal Reserve's latest interest rate resolution lowered the target range of the federal funds rate by 25 basis points to 4%-4.25%, in line with market expectations. At a press conference after the meeting, Powell said that this rate cut can be regarded as risk management to some extent. The dot plot released on the same day shows that there are two more interest rate cuts expected during the year.