The Federal Reserve is navigating a challenging landscape as it works to manage inflation while simultaneously supporting the job market, according to Chair Jerome Powell. In remarks prepared for the National Association for Business Economics event, Powell acknowledged that there is no risk-free approach to balancing the dual objectives of employment and inflation.
The central bank’s current predicament has been exacerbated by the sweeping economic policies of President Donald Trump, particularly his trade, immigration, and fiscal strategies. These policies have introduced complexities that the Fed has not faced in over a century. Recent data from the Commerce Department indicates that Trump’s tariffs have already led to price increases, contributing to inflationary pressures. A recent survey by the National Federation of Independent Business revealed that a growing number of small businesses are anticipating further price hikes in the upcoming months.
At the same time, signs of a weakening labor market are emerging. Job growth has been lackluster, with many individuals remaining unemployed for extended periods. There are currently more people seeking work than job openings available, which complicates the Fed’s mission.
Adding to the Fed’s difficulties, the shutdown of the federal government has halted the release of essential economic data, which the bank relies on to gauge the economy’s health. Despite this, Powell stated that the Fed continues to utilize a wide array of available public and private sector data, along with insights from a nationwide network of contacts through the Reserve Banks.
Powell reported that, based on the available data, the economic outlook for employment and inflation has not shifted significantly since the last Federal Reserve meeting. In September, the Fed made the decision to lower borrowing costs for the first time this year, while simultaneously expressing concern over potential risks to both inflation and employment.
The balance the Fed seeks to achieve is precarious; moving too quickly to reduce rates could leave inflation unchecked, whereas a slower approach might result in unnecessary hardship in the job market. Fed officials are currently engaged in robust discussions regarding the best strategies for steering the economy.
The divergence in opinions among Fed governors is notable, with Michelle Bowman and Christopher Waller — both appointed by Trump — dissenting in July by advocating for a rate cut. This was the first instance of multiple governors dissenting on a policy decision since 1993. Furthermore, Stephen Miran, who was sworn in shortly before the September meeting, suggested a more aggressive rate cut than eventually decided.
The ongoing dialogue within the Fed underscores the complexity of the current economic environment, highlighting the difficult path ahead as policymakers work to balance competing economic priorities.