Fed Chair Stresses Labor Market Risks Over Inflation

Federal Reserve Chairman Jerome Powell — at a press conference following the Fed's decision to cut the federal funds rate by 25 basis points to a range of 4% to 4.25% — underscored that downside risks to employment have become a rising concern for policymakers, even as inflation remains somewhat elevated.

“The marked slowdown in supply and demand for workers is unusual,” Powell said. “Downside risks to employment seem to have risen.”

The Fed cut its benchmark interest rate by a quarter percentage point on Wednesday, marking its first reduction in nine months and signaling a shift in focus toward a weakening labor market.

The quarter-point cut reflects a policy pivot from the Fed, which has spent much of the past two years focused on inflation.

While Powell acknowledged that inflationary effects from tariffs could prove “more persistent” than initially expected, he stressed that policymakers currently view them as “a one-off” factor. The Fed chairman said the costs of the tariffs are mostly being paid by U.S. importers, hurting their margins.

Powell said some of the more dire inflationary scenarios facing the economy have faded.

“Really, since April, to me, the risks of higher and more persistent inflation have probably become a little less, and that's partly because the labor market has softened, GDP growth has slowed,” Powell said.

Powell also pushed back against speculation that the central bank considered a larger, half-point rate cut. “There wasn’t widespread support at all for a 50 basis point cut today,” he said. “You know … we’ve done very large rate hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place.”

Wednesday’s decision reflects the Fed’s growing unease with slowing job growth and softening labor demand. By pivoting its focus toward supporting employment, the central bank is signaling that recession risks and economic weakness are now weighing more heavily on policy than fears of runaway inflation.