Federal Reserve Chair Deems Rate Reduction as “Risk-Management” Move
(MENAFN) US Federal Reserve Chair Jerome Powell described the recent reduction in the policy interest rate as a “risk-management cut,” signaling the move was a precaution against further weakening in the labor market.
Answering directly when asked if the rate cut could be viewed as such, Powell stated: "Yeah, I think you could think of this in a way as a risk-management cut."
At a post-meeting news conference, Powell highlighted the unusual nature of the current labor market, noting “The marked slowing in both the supply of and demand for workers is unusual in this less dynamic and somewhat softer labor market.”
He warned that downside risks to employment seem to have increased and attributed much of the job market’s deceleration to “lower immigration and lower labor force participation.”
Regarding monetary policy, Powell emphasized that the rate cut now places the Fed’s stance in a “more neutral” position, contrasting earlier descriptions of policy as “somewhat restrictive.”
Turning to tariffs and inflation, Powell acknowledged ongoing shifts in government policies and the uncertainty of their economic impact. “Higher tariffs have gone to push up some prices in some categories of goods but their overall effect on economic activity and inflation remain to be seen,” he said.
He offered a baseline outlook: “A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level.”
However, Powell cautioned that inflationary pressures might persist longer, adding, “But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.”
This statement came after the Fed’s decision on Wednesday to lower the federal funds rate by 25 basis points to a range of 4% - 4.25%, marking the first rate cut of 2025. The central bank noted heightened downside risks to employment while staying vigilant on its dual mandate.
Recent data reflects a softening U.S. labor market, with job gains slowing and unemployment rising to 4.3% in August.
On inflation, the Producer Price Index (PPI) dropped 0.1% in August—its first monthly fall since April—and rose 2.6% year-over-year, below forecasts. Meanwhile, the Consumer Price Index (CPI) increased 0.4% month-on-month and 2.9% year-on-year in August, matching expectations and reaching the highest annual inflation rate since January.
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