On Thursday, September 25, 2025, Federal Reserve Chair Jerome Powell addressed concerns about the U.S. economy facing a risk of stagnation ahead of the release of August Personal Consumption Expenditures (PCE) inflation data. Speaking in Washington, D.C., Powell underscored the delicate balance the Federal Reserve must maintain between controlling inflation and supporting employment.
Powell noted that while inflation remains above the Fed's 2% target, with core PCE inflation expected to hold near 2.9% year-on-year for August, the labor market shows signs of weakening. He cited stagnant job growth and a rising unemployment rate as factors increasing downside risks to economic growth.
The Federal Reserve has already implemented a 25 basis point interest rate cut earlier this month, marking a cautious shift in monetary policy aimed at mitigating recession risks without igniting inflationary pressures. Powell described this move as a "risk-management cut," signaling the Fed's intent to proceed incrementally rather than aggressively easing policy.
Powell's remarks come amid market expectations of further rate cuts later this year, with an 87.5% probability of another 25 basis point cut in October. However, he emphasized that inflation risks remain significant, requiring vigilance to avoid premature policy relaxation.
The August PCE data, a key inflation gauge closely monitored by the Fed, is anticipated to show a year-on-year increase of 2.7% in headline inflation. This data release is scheduled for Friday, September 26, 2025, and is expected to influence the Fed's policy trajectory in the coming months.
Powell also addressed political pressures, noting the importance of maintaining the Federal Reserve's independence despite external calls for more aggressive rate cuts. He highlighted the internal consensus among Fed officials to adopt a measured approach, balancing inflation control with the need to support a fragile labor market.
In summary, Chair Powell's statements on Thursday reflect the Federal Reserve's cautious stance amid persistent inflation and emerging economic headwinds, as the central bank awaits critical inflation data to guide its next policy steps.
