Fed Chair Powell on Interest Rate Cuts, Inflation, and Tariffs

Federal Reserve Interest Rate Decision

• 🎯 The Federal Open Market Committee decided to lower the target range for the federal funds rate by a quarter percentage point to 4%-4.25%.
• 📊 This decision was made after holding rates steady for five consecutive meetings.
• 📉 One official dissented, preferring a larger, half-point cut.

Economic Outlook and Inflation

• 📈 Inflation has eased but remains elevated, with PCE prices rising 2.7% and core PCE prices at 2.9% over the 12 months ending in August.
• ⚠️ Near-term inflation expectations have increased, partly due to news about tariffs.
• 🧩 Most long-term inflation expectations remain consistent with the Fed's 2% goal.
• 📊 The median projection for total PCE inflation is 3.0% this year, falling to 2.6% in 2026 and 2.1% in 2027.

Labor Market Softening

• labor demand has softened, and job creation appears to be running below the rate needed to hold unemployment constant.
• ⚠️ Powell stated he can no longer describe the labor market as "very solid."
• 📈 The unemployment rate has edged up, and downside risks to employment have risen.

Impact of Tariffs

• 🏭 Higher tariffs have begun to push up prices in some goods categories.
• 🤔 The overall effects of tariffs on economic activity and inflation remain to be seen.
• ❓ While a reasonable base case suggests effects on inflation will be short-lived, there's a risk of more persistent inflationary effects that need management.

Future Policy Stance

• 🔮 The Fed is now in a "meeting-by-meeting situation" regarding future rate moves.
• 🗓️ Policymakers updated projections to include two additional quarter-point rate cuts this year, one more than previously projected.
• 💡 Powell had previously signaled potential rate cuts in August at the Jackson Hole conference.