Powell: Calls for 50-basis-point rate cut are low, with employment deterioration emerging as a material risk
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Powell: Calls for 50-basis-point rate cut are low, with employment deterioration emerging as a material risk
Powell said in his opening remarks at the press conference that recent data showed the growth of U.S. economic activity had slowed down.
Navigating Web3 tides with focused insightsBy Zhao Yuhe, Li Dan, Wall Street Insights
Key Takeaways from Powell's Routine Press Conference on September 17:
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Monetary Policy: Today's move is a risk-management type of rate cut. There was not much support within the FOMC for a 50-basis-point cut.
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Dot Plot: Unusually complex economic conditions have led to significant divergence in Fed officials' interest rate projections.
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Labor Market: Revised employment data suggest the labor market is no longer as solid. The unemployment rate remains low but has risen; job growth has slowed, and downside risks have increased. Labor market indicators show substantial downside risks. Artificial intelligence (AI) may be one reason behind the hiring slowdown.
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Inflation: The transmission mechanism of tariff-driven inflation has slowed and its impact has diminished. The likelihood of "persistent tariff inflation" has decreased. U.S. PCE inflation is expected to rise 2.7% year-over-year in August, with core PCE up 2.9%. Services are expected to continue disinflation. Long-term inflation expectations remain rock-solid.
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Central Bank Independence: The Fed remains firmly committed to maintaining its independence. It would be inappropriate to comment on the legal dispute between Fed Governor Cook and former President Trump; the Fed will not respond to Treasury Secretary Bessent’s criticism or commit, as he urged, to an internal review, though it hints at possible further staff reductions. The FOMC remains united in pursuing its dual mandate.
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Tariffs: Tariffs have contributed 0.3–0.4 percentage points to core PCE inflation.
On Wednesday, September 17, Eastern Time, the Federal Reserve announced after its FOMC meeting that the target range for the federal funds rate would be lowered by 25 basis points, from 4.25%–4.5% to 4.00%–4.25%.
This marks the first rate cut during six FOMC meetings since the beginning of the year. In his press conference, Fed Chair Powell stated that although the unemployment rate remains relatively low, it has edged higher, job gains have weakened, and downside risks to employment have increased. At the same time, inflation has recently risen slightly and remains somewhat above normal levels. The Fed also decided to continue reducing its securities holdings.
During the Q&A session, he added that there was not broad support within the Federal Open Market Committee (FOMC) for a 50-basis-point rate cut.
You can view today’s (easing) action as a risk-management type of rate cut.
In his opening remarks, Powell said recent data indicate that the pace of U.S. economic activity has slowed. In the first half of this year, U.S. GDP growth was about 1.5%, down from 2.5% last year, primarily due to slowing consumer spending. By contrast, business investment in equipment and intangible assets has grown compared to last year. Housing market activity remains weak.
In the Summary of Economic Projections released by the Fed, the median forecast among FOMC members is for GDP to grow 1.6% this year and 1.8% next year, slightly higher than the June projection.
Regarding the labor market, Powell noted the unemployment rate rose to 4.3% in August, which is little changed from the past year and still relatively low. Over the past three months, nonfarm payroll gains have sharply decelerated, averaging only 29,000 per month. This slowdown is largely due to slower labor supply growth, driven by reduced immigration and declining labor force participation.
However, he also acknowledged that labor demand has weakened, and current job creation appears below the "equilibrium level" needed to keep the unemployment rate stable. Powell said wage growth, while still exceeding inflation, has continued to slow.
Overall, both supply and demand in the labor market are slowing—a rare situation. In this less dynamic and somewhat softer labor market, downside risks to employment have increased.
The median FOMC forecast shows the unemployment rate reaching 4.5% by year-end, followed by a slight decline.
On inflation, Powell said inflation has declined significantly from its mid-2022 peak but remains above the Fed’s 2% long-term target. Based on CPI and other data, overall PCE prices rose 2.7% over the 12 months through August, while core PCE excluding food and energy rose 2.9%.
He noted these readings are slightly higher than earlier in the year, mainly due to a rebound in goods price inflation. In contrast, services price inflation continues to ease. Short-term inflation indicators have fluctuated, partly due to tariffs.
Over the next year, most long-term inflation expectations remain aligned with the Fed’s 2% goal. The median FOMC forecast projects overall inflation at 3.0% this year, falling to 2.6% by 2026 and 2.1% by 2027.
Powell said changes in U.S. government policy remain ongoing, and their economic effects are still uncertain. Higher tariffs have already pushed up prices in certain goods categories, but their broader impact on economic activity and inflation remains to be seen.
He said a reasonable baseline assumption is that tariff effects are one-time, leading to a temporary rise in price levels. But another possibility exists—that the inflationary effect could be more persistent—and the Fed’s responsibility is to ensure a one-time price increase does not evolve into sustained inflation.
In the near term, inflation risks are tilted upward, while employment risks are tilted downward—a challenging situation. When our goals conflict, our policy framework requires trade-offs between the two mandates. Given rising downside risks to employment, the policy balance has shifted. Therefore, we believe it is appropriate to move closer to a "neutral" policy stance at this meeting.
In this Summary of Economic Projections (SEP), each FOMC member provided their personal assessment of the federal funds rate path based on their own most likely economic scenario. The median projects the federal funds rate at 3.6% by year-end, 3.4% by end-2026, and 3.1% by end-2027—0.25 percentage points lower than the June forecast.
Powell emphasized these individual forecasts involve uncertainty and do not represent committee plans or resolutions:
Our policy is not on a preset path.
Below is the Q&A session from Powell’s press conference:
Q1: You welcomed a new Fed Board member, Steven Myron, who still holds a White House position. This is the first time in decades a Fed governor has direct ties to the executive branch. Does this undermine the Fed’s ability to maintain political independence in daily operations? And how do you maintain public trust in the Fed’s political neutrality?
Powell: We did welcome a new board member today, just as we always do. The committee remains united in pursuing its dual mandate. We are firmly committed to preserving our independence. Beyond that, I have nothing more to share.
Q2: You and other Fed officials often discuss tariffs’ impact on inflation, but many businesses now seem to absorb tariff costs themselves. Could tariffs therefore affect the labor market and other areas more than inflation? Do you think current labor market weakness may stem more from tariffs than inflation?
Powell: That’s entirely possible. We’ve seen rising goods prices contributing to higher inflation—most of this year’s inflation increase has been driven by goods prices. While the effect isn’t large yet, we expect these impacts to unfold over the remainder of this year and into next year.
As for the labor market, it may also be affected, but I believe the main driver is immigration changes. Labor supply has clearly shrunk, with almost no growth. At the same time, labor demand has dropped sharply.
What we’re seeing now is what I call a “strange equilibrium”—normally equilibrium is good, but here it results from clear declines on both sides. Demand has fallen more, which is part of why we see the unemployment rate rising.
Q3: Does the current economic condition and risk balance no longer justify a restrictive policy? Under what circumstances would a cut larger than 25 basis points occur? Was this seriously discussed at this meeting?
Powell: I wouldn’t put it that way. But we can say: throughout this year, we maintained a very clear restrictive policy—many define “how restrictive” differently, but I believe our policy was indeed restrictive. We could do so because the labor market was strong, with robust job growth, etc.
But if you look back—from April onward, then July and August revised jobs data—you can no longer claim the labor market is that strong. This means risks are no longer clearly skewed toward inflation but are moving toward balance. Maybe not fully balanced yet, but clearly heading that way.
So our decision today represents another step toward a “neutral policy.”
There was not broad support today for a 50-basis-point cut. You know, over the past five years we’ve had very large rate hikes and cuts, usually when policy is seen as severely off-target and needs rapid correction.
This is clearly not the case now. I believe our current policy has performed well throughout this year. Our strategy of waiting and observing changes in tariffs, inflation, and the labor market has been correct.
Now we see a sharp drop in job gains and other signs of labor market softening. This tells us that while risks may not yet be fully balanced, they are moving in that direction, so this shift warrants a policy adjustment.
Q4: How should we interpret today’s rate cut? Is the committee hedging against potential labor market weakness, or do you believe a downturn is already underway? Why are your rate forecasts more dovish than three months ago while unemployment forecasts haven’t changed much?
Powell: You can view this cut as a “risk-management style rate cut.”
If you look at our Summary of Economic Projections (SEP), the median forecast for GDP growth this year and next is actually slightly higher, while inflation and unemployment forecasts are nearly unchanged.
So what has changed? Our risk assessment of the labor market has shifted dramatically. At the last meeting, we saw 150,000 monthly job gains. Now, looking at revised and latest data, the picture is very different.
I’m not saying we should overly rely on nonfarm payrolls, but it’s one of many signals showing the labor market is clearly cooling. So we must reflect that in policy.
Q5: In the SEP, the median committee forecast shows inflation will be higher by end-next year than previously projected, and won’t return to 2% until 2028. Starting a series of rate cuts now—could this increase inflation risks?
Powell: We fully understand and take very seriously the need—we must remain firmly committed to returning inflation sustainably to 2%. We will do so.
At the same time, we must weigh risks between our two goals. Since April, the risk of persistently high inflation has declined, partly because the labor market has softened and GDP growth has slowed.
So I’d say inflation risks are no longer as elevated. On employment, while the unemployment rate remains relatively low, we do see rising downside risks.
Q6: You’re cutting rates due to labor issues, but you also say labor problems stem more from reduced immigration—a factor monetary policy can’t influence. So why is this more important than inflation, which is still nearly a full percentage point above target?
Powell: My earlier point was that labor market changes are more tied to immigration shifts than tariffs—that was in response to that question. I didn’t mean all labor market issues stem from tariffs.
Right now, labor supply is weakening due to lower immigration, and labor demand is also falling significantly—even faster. We know this because the unemployment rate is rising.
That’s what I meant earlier.
Q7: Since 2015, the SEP has said every year “we’ll achieve 2% inflation within two years,” but never delivered. This year, you say “by 2028.” Does this imply the 2% target is unrealistic? Will the public still believe you?
Powell: You’re right—we now project reaching 2% inflation by 2028. But that’s simply how this forecasting process works.
Within this framework, we write down an interest rate path we believe is most likely to bring inflation back to 2% while achieving maximum employment.
It’s more of a technical exercise—writing down a policy path—not a confident prediction of where the economy will be in three years. No one can accurately predict the economy three years out.
But the task of the summary is to lay out the policy mix you believe will achieve those goals within that timeframe.
Q8: Recent inflation reports show prices still rising in key household expense categories. If these prices keep going up, what will the Fed do?
Powell: Our expectation—which you can infer from our consistent messaging this year—is that inflation will rise this year, mainly due to tariffs affecting goods prices. But we expect this to be a one-time price jump, not a sustained inflation process.
That’s been our forecast. Almost all individual委员 forecasts reflect similar views. But of course we can’t just assume it will happen—our job is to ensure it stays one-time and doesn’t become persistent inflation. That’s our responsibility.
Currently, we do see inflation continuing to rise, but perhaps not as much as we expected a few months ago. Because the pass-through from tariffs to inflation has been slower and smaller than anticipated.
Additionally, the labor market has weakened, so we believe the risk of runaway inflation has diminished.
That’s why we believe it’s now time to acknowledge: the other mandate—employment—is facing rising risks, and we should adjust toward a more neutral policy stance.
You ask “what would we do”—we’ll do what we need to do. But we have two statutory mandates, and we strive to balance them. Our long-standing framework asks: when goals conflict, which one is farther from being achieved? Which one takes longer to reach? We base our decisions on such judgments.
In the past, we clearly prioritized fighting inflation because inflation risks were higher. Now we see clear downside risks in the labor market, so we’re moving toward a more neutral policy.
Q9: For ordinary households, especially young people looking for jobs, how should they understand the current job market?
Powell: The current labor market is very unusual. We do believe lowering rates now to move policy closer to neutral is appropriate and could help improve labor market conditions.
We’ve observed that marginalized groups in the labor market—such as recent college graduates, minorities—do face greater difficulties finding work. The current “job-finding rate” is very low, meaning people are landing jobs much more slowly than before.
On the other hand, layoff rates remain low. So it’s a “low hiring, low layoffs” environment. Our concern is that if layoffs begin to rise, unemployed workers will face a “no hiring” landscape, which could quickly spike the unemployment rate.
In a healthier economy, these people could find jobs. But now, hiring is extremely slow. We’ve grown increasingly concerned about this in recent months. That’s a major reason we believe it’s now necessary to start adjusting policy and balance our dual mandates more evenly.
Q10: In the past, you used “policy recalibration” when cutting rates. But not this time. You emphasized “no preset path.” Does this mean you intentionally avoided “recalibration”? Are we now in a “meeting-by-meeting, data-dependent” phase? Are we moving back toward neutral policy? Do the divergent forecasts among committee members also imply greater uncertainty about future policy paths?
Powell: I believe we are indeed in a “meeting-by-meeting, real-time assessment” phase, closely watching incoming data.
I’d also like to clarify the Summary of Economic Projections (SEP). Everyone should understand: this forecast reflects 19 individual members independently writing down their view of the “most likely economic path” and the “appropriate monetary policy path” accordingly. We don’t debate or enforce consensus on these forecasts—we simply compile them into a chart. Sometimes we discuss them, but ultimately, it’s a collection of personal judgments.
We often say “policy has no preset path,” and we truly mean it. Every actual decision we make is based on the latest data, evolving economic outlooks, and shifting risk balances.
You may notice in the SEP that 10 members wrote “two or more additional cuts this year,” while 9 others expect one or fewer cuts—or even no further cuts.
So rather than viewing this as a fixed plan, I suggest seeing it as a distribution of possibilities and probabilities. It’s a spread, not a schedule.
This is a highly unusual moment. Normally, when the labor market weakens, inflation is low; when the labor market is strong, inflation becomes a concern. But now we face “two-way risks”: downward pressure on employment, while inflation isn’t fully under control. That means there is no “risk-free” policy path.
For policymakers, this is extremely difficult. So significant forecast divergence is understandable.
It’s not just differing views on the economic outlook—it’s deeper: when goals conflict, how do we weigh them? Which goal should we worry about more?
In unprecedented circumstances like this, forecast differences are natural. In fact, if everyone agreed, I’d find that suspicious. We sit down, discuss seriously, debate thoroughly, then make decisions and act. Yes, forecasts differ widely—but in this environment, that’s understandable and acceptable.
Q11: You’ve long emphasized the importance of Fed independence. But now there’s market speculation about what President Trump intends for the Fed. In this context, what signals should markets watch to judge whether the Fed is still making decisions based on economics rather than politics? Do you think the lawsuit involving Fed Governor Lisa Cook touches on Fed independence?
Powell: A core element of Fed culture is that all decisions are data-driven and never consider political factors. This is deeply ingrained within the Fed, and every employee believes in it.
You can see from how we talk about policy, what officials say in speeches, and the decisions we make: we are still adhering to this principle. That’s everything we do.
Regarding the issue with Lisa Cook, this is a court case, so I believe it’s inappropriate to comment.
Q12: The BLS’s preliminary benchmark revision shows 911,000 fewer jobs added than previously estimated. June’s revision was negative—the first since December 2020. With data itself so unstable, how can the Fed rely on them for critical rate decisions? If this revision holds, it means 51% of previously estimated job gains never existed. This suggests the labor market was much weaker at the start of the year than we thought. Had you known this earlier, would you have cut rates sooner?
Powell: Regarding this benchmark revision, the outcome was almost exactly what we expected. It’s remarkably close.
This isn’t the first time. Recently, the BLS’s employment data have frequently shown “systematic overestimation.” They are well aware of the issue and actively working to fix it.
Partly it’s due to low survey response rates from firms, but more critically, it’s the so-called “birth-death model.” Many jobs are created by new firms, whose “life and death” are hard to track in real time, so models are used instead.
Especially during periods of structural economic change, this model struggles to be accurate. They are improving it and have made progress.
But I’d say the overall data are still “good enough” to support our decisions. The current data issues stem mainly from low response rates—a widespread problem in both government and private surveys.
We certainly wish for higher response rates, which would make data more stable. Achieving that requires ensuring data-collecting agencies have adequate resources. Ultimately, it’s not complicated—just requires investment.
Also, initial job data do suffer from low response rates. But in the second and third months, we keep collecting data, and reliability improves significantly. So the issue isn’t “we lack data,” but “we get it a bit later.”
You know, our job is “forward-looking,” not “backward-looking.” We must take the most appropriate action based on current information. And that’s exactly what we did today.
Q13: Some marginal labor market indicators suggest recession may have already begun—for example, Black unemployment exceeded 7% in August; average weekly hours declined; college grads find jobs harder; youth unemployment is rising. In this context, why do you think a 25-basis-point cut will help?
Powell: I’m not saying I believe this 25-basis-point cut alone will have a huge economic impact. You must view it within the entire rate path—markets operate on expectations, and our mechanisms revolve around expectations. So I believe our policy path does matter.
When we see signals like these, I believe we must use our tools to support the labor market.
The phenomena I mentioned earlier—you see minority unemployment rising, youth and economically vulnerable, cycle-sensitive groups affected—are part of why we see labor market weakening, along with the overall decline in job gains.
I’d also highlight labor force participation—its partial decline over the past year may be more cyclical than just demographic aging. Combining all these factors, we see the labor market softening, and we neither want nor need it to worsen further.
So we use policy tools to respond, starting with a 25-basis-point rate cut. But markets are already pricing in the entire rate path. I’m not “endorsing” market pricing—I’m just saying: what we’re doing is not a one-off.
Q14: Current growth structure looks complex—on one side, corporate investment, especially AI-driven; on the other, consumption driven by high-income households. Do you think this growth pattern is unsustainable?
Powell: I wouldn’t say that. Your observation is correct—we are indeed seeing unprecedented economic activity in AI infrastructure and corporate investment. I don’t know how long this will last—nobody does.
On consumption, spending data have far exceeded expectations, likely driven by high-income groups—there’s plenty of evidence pointing that way. But whoever is spending, spending is still spending. So I believe the economy is still moving forward.
Growth this year will likely reach 1.5% or higher, possibly a bit better. Judging from our forecasts, they keep getting revised upward.
On the labor market, despite downside risks, unemployment remains low. That’s our current assessment.
Q15: The Treasury Secretary recently said the Fed faces “mission creep” and “institutional bloat” and supports an independent review. Do you support such a review? Or are you open to reforms within the Fed?
Powell: Of course, I won’t comment on statements by the Treasury Secretary or any other official.
On reforming the Fed—we’ve just completed a lengthy and, I believe, highly successful update of our monetary policy framework.
I’d also add that internally, the Fed is already doing a lot behind the scenes. We are advancing a roughly 10% workforce reduction across the Federal Reserve System, including the Board and regional Reserve Banks.
This means that after completing this round of downsizing, the Fed’s total staffing will return to levels seen over a decade ago—so over ten years, we’ll have zero net staff growth. I believe we may do even more in the future.
So yes, we are open to constructive criticism and any suggestions that can help us improve. We’re always willing to try to do things better.
Q16: There’s growing discussion that AI is already affecting the labor market—boosting productivity while reducing labor demand. Do you agree? If true, what implications would this have for monetary policy?
Powell: There’s great uncertainty here. My personal view—partly speculative, but I suspect many agree—is that we are starting to see some effects, but it’s not the main driver yet.
Particularly for recent graduates, this might be more noticeable. It’s possible that companies or institutions that would have hired college grads are now using AI more effectively, potentially affecting youth employment opportunities.
But it’s only a partial explanation. Overall, job growth is slowing, and economic growth has declined. So multiple factors are likely at play.
AI may be one factor, but its exact magnitude is hard to determine.
Q17: What direct evidence do you currently see of tariffs impacting inflation?
Powell: Look at the goods category broadly. Last year, goods inflation was negative. Looking back over the past 25 years, falling goods prices were common—even as quality improved, prices often dropped.
But over the past year, goods inflation has been about 1.2%. That doesn’t sound high, but it’s a big shift. Analysts differ, but we estimate tariffs may have contributed 0.3 to 0.4 percentage points to the current 2.9% inflation rate.
Currently, most tariffs aren’t borne by exporting countries but by intermediate firms between exporters and consumers. If you’re an importer selling to retailers or using goods for production, you’re likely absorbing most of the cost and haven’t passed it all on to consumers.
Most of these intermediaries say they “will definitely” pass on these costs in the future, but haven’t done so yet.
So consumer price pass-through remains very limited—much slower and smaller than we expected. But based on available data, tariffs do have a transmission effect on inflation.
Q18: Can you share under what circumstances you might consider leaving the Fed before May next year?
Powell: I have nothing new to share today.
Q19: We often hear you say your colleagues make decisions without considering politics. But now you have a new colleague from the political world, who may view everything through the lens of “which party benefits,” and who still holds a White House role. How should the public and markets interpret his statements? For instance, his forecast influenced today’s SEP—especially the median number of cuts this year, which changed only after including his input. How do you respond to markets and the public trying to decipher your communications and policy intent?
Powell: We have 19 FOMC participants, 12 of whom have voting rights at any given time as part of a rotating system, which you’re likely familiar with.
So no single voting member can unilaterally change outcomes—the only way to influence the outcome is to present a compelling argument. And to do that, you need strong data analysis and deep economic understanding.
That’s how Fed meetings work. This culture is deeply embedded and won’t change because of someone’s background.
Q20: Before this meeting, we heard many conflicting voices, but today’s meeting seemed more unified than many expected. Can you explain what factors led to such strong consensus? In the dot plot, we also see large divergence. Can you discuss both: what drove consensus on today’s cut, and what explains the wide divergence on future paths?
Powell: I believe there is now broad agreement on the state of the labor market.
For example, at the July meeting, we could still describe the labor market as solid, citing 150,000 monthly job gains. But now, with new data—not just payrolls but multiple indicators—we see substantial downside risks in the labor market.
I mentioned at the time that in July we already recognized risks, but now those risks have materialized, and the situation is clearly tighter. I believe this is widely accepted within the committee.
However, members interpret this situation differently. Nearly all supported today’s cut, but some support further cuts while others don’t—that’s visible in the dot plot.
That’s just how it is. We all take this work seriously, thinking and discussing constantly. Internally, we debate these issues, then at formal meetings, we lay out all views and reach decisions.
You’re right—the dot plot shows large divergence. But given the historically unusual situation we face, such divergence isn’t surprising.
But remember: unemployment is 4.3%, growth is around 1.5%. We’re not in a “terrible economy” situation. We’ve faced tougher periods.
Yet from a monetary policy standpoint, judging the right move is genuinely difficult. As I said, there’s no “risk-free” path. No choice is “obvious.” We must monitor inflation closely while not neglecting maximum employment. Both are equally important duties.
That’s why views differ on what to do. Yet despite that, we reached strong consensus and took action today.
Q21: You mentioned earlier that current job gains are now below the “minimum level needed to maintain employment balance.” I’m curious—what does the Fed currently estimate that “balance level” to be? You’ve repeatedly cited downside risks in the labor market, but some Q3 economic activity and output indicators appear strong, like robust personal consumption. How do you reconcile these contradictions? Could there be upside surprises in the labor market?
Powell: There are many ways to calculate this number, none perfect. But clearly, it has declined sharply. You could say the current “balance level” is between 0 and 50,000 monthly jobs—whether you’re right or wrong depends on the method, as estimates vary widely.
Whatever it was—150,000, 200,000—months ago, it’s now been drastically revised down, because fewer people are entering the labor force.
We now see almost no labor force growth. Over the past few years, labor supply relied heavily on new entrants—now that source has dried up.
Meanwhile, labor demand has also fallen sharply. Interestingly, supply and demand are now “falling together.” Still, we do see the unemployment rate rising—slightly beyond its past-year range. 4.3% remains low, but the phenomenon of both sides rapidly declining is drawing serious attention.
If such upside risks emerge, that would be wonderful. We’d love to see it. I don’t see much contradiction. Seeing economic resilience is good. Much of it comes from consumption—data released earlier this week showed spending far stronger than expected.
Additionally, we now see another strong source of economic activity—AI-driven corporate investment.
So we’ll monitor all these areas closely. Indeed, in the SEP, we raised the median GDP growth forecast between June and September. Meanwhile, inflation and labor market forecasts remained largely unchanged. Our action today was primarily driven by the increased risks in the labor market.
Q22: Considering the cumulative impact of high rates on housing, are you concerned current rates could worsen housing affordability? Might this further hinder household formation and wealth accumulation for certain groups?
Powell: The housing market is highly sensitive to interest rates and is a core area of monetary policy.
Recall during the pandemic, when we cut rates to zero, the real estate industry expressed immense gratitude. They said they survived only because of our aggressive rate cuts and credit support, enabling continued financing. But that also means when inflation rose and we hiked rates, the housing sector was indeed affected.
You’re right—rates have recently come down. While we don’t set mortgage rates directly, our policy influences them. Lower rates typically boost housing demand and reduce builders’ financing costs, supporting new supply.
These can help alleviate some issues. But most analysts believe only very large rate moves significantly affect the housing market.
Longer term, by achieving maximum employment and price stability, we foster a strong, healthy economy—which benefits housing too.
But one last point: we also face a deeper, structural issue beyond monetary policy—widespread housing shortages nationwide.
In many U.S. regions, housing supply is severely inadequate. Around metro areas like Washington, development is saturated, forcing builders outward—creating structural challenges.
Q23: After the last SEP release, you said committee members lacked confidence in their forecasts. Do you still feel that way?
Powell: Even in calm times, forecasting is extremely difficult. As I’ve said, forecasters are “the most justified group to be humble,” though they rarely are.
Now, forecasting is harder than ever. So if you asked any forecaster whether they’re confident in their forecast, their honest answer would likely be: no.
Q24: If you’re now starting to cut rates, why continue shrinking the balance sheet? Why not pause balance sheet reduction altogether?
Powell: We are indeed substantially reducing the size of our balance sheet. We remain in an “ample reserves” regime, and we’ve said we’d stop runoff slightly above that level—we’re now very close.
Macroscopically, we don’t believe balance sheet reduction has had significant impact. These are small amounts relative to a massive economy. Current runoff isn’t large, so I don’t believe it has macroeconomic effects at this stage.
Q25: At his confirmation hearing, new Fed Governor Myron mentioned the Fed actually has three mandates—not just maximum employment and price stability, but also “moderate long-term interest rates.” What does “moderate long-term rates” mean? How should we understand it? Especially when seeing volatility in 10-year Treasury yields, how do you incorporate this goal into policy-making?
Powell: We’ve long viewed “maximum employment” and “price stability” as our dual mandate. “Moderate long-term interest rates” is generally seen as a natural outcome of achieving low, stable inflation and maximum employment.
Therefore, we haven’t treated “moderate long-term rates” as a separate, actionable mandate for a long time. In my view, we don’t intend to, nor are we incorporating it differently into our policy framework.
Q26: We recently learned the average U.S. FICO credit score dropped 2%—the largest decline since the Great Depression. Personal loan and credit card delinquency rates are also rising. Are you concerned about consumer financial health? Do you think today’s rate cut will help? Are you worried rate cuts could overheat financial markets or fuel asset bubbles?
Powell: We are aware of this. Delinquency rates are indeed rising slowly, and we’re monitoring closely. Currently, overall levels aren’t particularly concerning.
As for rate cuts, I don’t believe one cut brings significant improvement. But long-term, our goal is a strong economy and labor market with stable prices—these help improve consumer finances.
We’re highly focused on our two mandates: maximum employment and price stability. Today’s action reflects judgment on these two goals. We also closely monitor financial stability.
I’d say the overall picture is “complex.” Household balance sheets are generally healthy, and the banking system is sound. Though lower-income groups face more pressure, from a financial stability perspective, we don’t see systemic risks.
We don’t set “correct” or “incorrect” asset price benchmarks, but we do monitor for structural vulnerabilities at the system level. Currently, we don’t see high structural risks.
Q27: You’ve said the Fed cannot afford complacency on inflation expectations. You mentioned short-term expectations have risen. Can you elaborate? Also, on the long-term side, do controversies over Fed independence or fiscal deficits exert pressure on inflation expectations?
Powell: As you said, short-term inflation expectations often react to recent inflation data. If inflation rises, expectations rise, with belief it may take time to fall.
But throughout this period, long-term inflation expectations—whether market-based breakeven rates or nearly all long-term surveys—have remained very stable, aligned with our 2% target. Though University of Michigan’s survey recently drifted slightly, overall long-term expectations are solid.
Still, we remain vigilant. We assume our actions affect inflation expectations and must continuously reaffirm our commitment to the 2% target through actions and communication. You’ll keep hearing us emphasize this.
Certainly, this moment is unique—both our goals—employment and inflation—face risks. So we must balance them. When both are at risk, our task is trade-offs—and that’s exactly what we’re striving to do.
On your second question—do debates over Fed independence affect inflation expectations? I don’t see market participants incorporating these factors into their rate expectations.
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