Fed Chair Powell Warns of Challenging Economic Situation Following Rate Cut

Powell Flags Dual Risks After Rate Cut

Federal Reserve Chair Jerome Powell warned that the U.S. economy is entering a difficult phase, as the central bank attempts to balance rising inflation with a marked slowdown in hiring. Speaking at the Greater Providence Chamber of Commerce, Powell described the current environment as a "challenging situation" for policymakers, noting that the downside risks to employment have increased while uncertainty around inflation remains high, according to ABC News. The Federal Open Market Committee (FOMC) cut the federal funds rate by 0.25 percentage points to a range of 4% to 4.25%, the first reduction this year, in an effort to support the labor market.

Labor Market Weakens, Inflation Persists

Powell explained that the labor market has softened considerably over the summer, with both the supply and demand for workers declining. This shift forced the Fed to reconsider its policy stance, moving toward a more neutral position to avoid unnecessary weakening of employment. At the same time, inflation has risen and remains above the central bank’s 2% target, creating tension between the Fed’s dual mandate of price stability and maximum employment. Powell emphasized that there is "no risk-free path" and that the Fed must balance both objectives, as reported by CNBC and ABC News.

Policy Uncertainty and Political Pressure

The recent rate cut follows months of pressure from U.S. President Donald Trump, who advocated for more aggressive monetary easing. The FOMC’s decision fell short of Trump’s preferred larger reduction, and the central bank’s independence has come under scrutiny as Trump moved to replace members of the Fed’s board of governors. According to ABC News, the Fed projected two additional quarter-point rate cuts over the remainder of 2025, but Powell stressed that future policy decisions will depend on incoming economic data and evolving risks.

Impact on Borrowing and Financial Markets

The rate cut has already influenced financial markets, with mortgage rates and other consumer borrowing costs showing modest changes. According to Bankrate, average rates for 30-year fixed mortgages rose slightly to 6.38%, while 15-year fixed and jumbo loans also increased. Experts note that while the Fed’s actions can ease some borrowing costs, factors such as bond market movements and investor sentiment play a larger role in determining rates. Powell reiterated that the Fed’s policy is not on a preset course and will be adjusted as needed to support both employment and price stability.