After three days of record highs, Wall Street is in the red.
Jerome Powell, the Fed’s chairman, spoke publicly for the first time since he voted last week on America’s benchmark interest rates.
Investors were hoping he’d outline upcoming interest rate cuts. He did not.
The Fed has a dual mandate to keep inflation around two percent and increase job growth through the government’s borrowing rates.
Rates are used as a blunt tool, swinging higher when prices climb, and plunging when unemployment accelerates.
Last Wednesday, the Federal Reserve’s 12-member voting board reduced America’s benchmark interest rate by a quarter percentage point, marking the first reduction since December 2024.
Since then, Wall Street has surged with the expectation that more cuts might be on the horizon at the next meeting, facilitating easier spending and investment.
However, Powell highlighted the complexity of the decision, especially after August data revealed a rise in the number of Americans filing for unemployment and increased prices in groceries, auto repairs, clothing, and dining.
Fed Chair Jerome Powell spoke for the second time since the decision to cut rates
This week, Powell indicated he is now more focused on employment data, shifting from his previous focus on pricing and spending in his long-standing inflation battle.
‘The unemployment rate is low but has edged up,’ he said. ‘Job gains have slowed, and the downside risks to employment have risen.
‘Recently, it became evident that the balance of risks has changed, leading us to move towards a neutral policy stance during our last meeting.’
Powell also said he thinks companies are responding to tariffs by slowing down hiring.
‘Companies are holding off, they’re not hiring,’ Chair Jerome Powell said at a luncheon on Tuesday. ‘That may be a way of passing off tariff costs.’
For months, analysts have been warning that President Donald Trump’s tariffs would raise costs on Americans.
However, Powell said he has seen smaller-than-expected price spikes from tariffs.
Back in April, when Trump announced his tariff initiatives, Yale University’s Budget Lab projected that American households might incur extra costs up to $4,400 annually.
Fed Chair Jerome Powell warned on Tuesday that American companies are not immediately replacing employees – clearing some payrolls might be a way they’re paying for tariffs
So far, that hasn’t happened: In May, the inflation rate dropped to 2.4 percent before climbing back to 2.9 percent in August.
And Americans continue to spend, despite the slightly higher prices. Last month, consumer spending moderately rose.
Powell’s comments also come a day after Stephen Miran, the Trump-backed governor who was temporarily appointed to the Fed last week, warned that a slow pullback of interest rates risks job losses.
Miran was the only voting member who wanted a half-point cut.
This morning, Austan Goolsbee, the President of Chicago’s Fed, told CNBC that the decision to cut rates despite higher-than-average inflation was not a sign that the Fed moved its consumer pricing goals.
‘Heck no, we did not move the target,’ he said. ‘The target is 2 percent. We have to get inflation back to 2 percent, period.’
