Federal Reserve Chairman warns of inflationary and employment risks in the US.

247 - Federal Reserve Chairman Jerome Powell said Tuesday (23) that the U.S. economy faces a scenario of simultaneous risks in the labor market and inflation. The statement was made during a speech at the Greater Providence Chamber of Commerce in Rhode Island and reported by Bloomberg. Powell reinforced that there is no "risk-free path" for monetary policy, at a time of uncertainty about future interest rate cuts.

According to him, "the short-term risks to inflation are tilted to the upside and the risks to employment to the downside — a challenging situation." The Fed chairman added: "Two-sided risks mean there is no risk-free path."

Political debate and pressure from Trump

Powell also rejected criticism that the Federal Reserve had acted with political motivation. "We're looking at what's best for the people we serve. The truth is, most of the time, those who call us politicians are just making a cheap attack," he said.

The current president of the United States, Donald Trump, has been one of the main critics, accusing Powell of favoring Democrats when deciding on gradual interest rate cuts. Furthermore, Trump intensified pressure on the central bank by advocating for more aggressive reductions and even initiated proceedings to dismiss Governor Lisa Cook, an unprecedented move that could be reviewed by the Supreme Court.

Interest rate cuts and a weakened labor market.

The Federal Reserve recently lowered its benchmark interest rate to a range of 4% to 4,25%, the first cut of 2025. Powell described the move as a "risk management" adjustment in the face of a slowing labor market. Recent data showed a sharp drop in job creation, exacerbated by a reduction in the labor supply, influenced by the stricter immigration policies implemented by Trump.

“There has been a marked slowdown in both the supply and demand for workers — an unusual and challenging development. In this less dynamic market, the downside risks to employment have increased,” Powell stated.

Inflation and tariffs

The Fed chairman also highlighted that the effects of the government's tariff policy could maintain inflationary pressure. He believes the recent price increases are primarily a result of the tariffs imposed by Trump, but that it should be a one-off impact. "I still see the tariffs as a one-time adjustment in the price level," Powell said, echoing the position he adopted at the press conference on September 17th.

Internal disagreements at the Fed

The central bank's own projections reveal divisions among policymakers. Some monetary policymakers foresee two more 0,25 percentage point cuts this year, while others advocate for only one or even none. Governor Michelle Bowman stated that the Fed must act "decisively" to support employment, while Stephen Miran advocates for stronger and faster reductions.

Powell, in turn, reinforced the need for balance in a context marked by political and economic uncertainties: “In democracies around the world, public trust in economic and political institutions has been challenged. Those of us in public service right now need to focus on fulfilling our critical missions as best we can amidst turbulent seas and powerful crosswinds.”