America’s central deals with potentially higher inflation and a slowing labor market. Federal Reserve Chair Jerome Powell (2025 states that is a “challenging situation” for Fed Policymakers. Yet, he says that at the moment, interest rates are in a good place to deal with either threat.
Powell emphasizes the need to prevent one-time tariff inflation from becoming an ongoing problem, justifying caution on rate reductions. “This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments.” (Powell, 2025).
There has been recent controversy about what the Fed should do regarding interest rates. Investors are expected a cut rate two more times before the year ends, being the lowest it has been since October 2022.
Meanwhile, President Donald Trump’s diverse tariffs are pushing up some prices while job growth stays still, putting the Fed under stress. “Two-sided risks mean that there is no risk-free path” (Powell,2025).
The calls for aggressive cuts
Some Fed officials advocate aggressive rate cuts to protect the labor market, highlighting downside risks to employment amid tariffs and slowing job growth. Vice Chair Michelle Bowman notes labor market fragility and believes tariffs will only slightly and temporarily affect inflation.
According to Labor Department data, job growth is lull as unemployed workers seeking jobs now exceed the demand for workers, although unemployment rate remains low at 4.3%. The new addition to the Fed, Governor Stephen Miran, argues the neutral interest rate is lower than economists estimate, recommending almost two percentage points of additional cuts.
Some Fed officials are on the fence
In contrast, other officials, including Chicago Fed President Austan Goolsbee, warn that inflation remains a problem, urging cautious and gradual rate reductions. Atlanta Fed President Raphael Bostic stresses that price-stability risks are still significant and expects inflation to continue rising.
Therefore, the Fed faces two-sided risks, balancing stable prices and maximum employment without a risk-free path forward.Transitioning from these debates, Powell confirms no crisis exists demanding large rate cuts immediately, maintaining a modestly restrictive policy stance. Finally, investors anticipate two more rate cuts this year, potentially bringing borrowing costs to their lowest level since October 2022.
Reference
Mena, B. (2025, September 23). Fed can’t ignore the risk of higher inflation, Powell says. CNN. https://edition.cnn.com/2025/09/23/economy/fed-chair-powell-rate-cuts