Powell said employment and inflation are "challenging." What will happen to the rate?

Labor market and inflation forecasts pose risks to the U.S. Federal Reserve, which has found itself in a "difficult situation" in its monetary policy, the regulator's chief Jerome Powell said. His speech is published on the website of the Fed.

"Short-term risks to inflation have shifted to the upside and to the downside on employment, creating a challenging situation. Threats on both sides mean there is no risk-free path," Powell said. He said that too much monetary easing could prevent the fight against inflation from ending, which would then require a new tightening course to bring it back to the 2% target. At the same time, maintaining tight policy for too long could unduly weaken the labor market. Therefore, he emphasized, the Fed's strategy involves balancing both sides of the dual mandate.

The Fed chief described a situation similar to stagflation, when economic growth slows down and inflation remains elevated. Although the current conditions are much milder than the U.S. crisis of the 1970s and 1980s, it is still a serious challenge for the Fed, CNBC noted.

The increased risks to employment have changed the balance of threats to the economy, so at the last meeting the regulator took a step toward a more neutral policy and lowered the rate - to 4-4.25%, Powell said.

"I believe this level is still moderately constraining, but it leaves us well positioned to respond to possible economic developments," the Fed chairman added. He emphasized that the Fed's policy "does not have a predetermined course" and that the regulator will make decisions based on new data, forecasts and the balance of risks.

"We remain committed to supporting maximum employment and returning inflation to a sustainable level of 2 percent," Powell summarized.

The main U.S. index S&P 500 on the background of Powell's speech slightly accelerated the decline. At the time of publication of this text, it was down about 0.3%. The blue-chip index Dow Jones was fluctuating at about zero: it went into the plus side, and then fell back into the minus side. "Technological" Nasdaq Composite was losing about 0.5%. In contrast, the Russell 2000 small-cap index was up 0.65%. The VIX, known as Wall Street's "fear index," was up more than 2%.

But then the indexes accelerated their decline: the S&P 500 was losing about 0.6%, the Dow was losing about 0.34, the Nasdaq was down nearly 1%, and the Russell 2000 was down 0.1%. The VIX growth accelerated to 5%.

Powell said the market appears overvalued on a number of indicators, CNBC reported. "On many indicators, such as stock prices, valuations are really quite high," he said. However, right now, this in itself "does not in itself imply increased risks to financial stability," the Fed chief added.

The head of the Fed made a speech on the state of the US economy a week after the first rate cut in 2025. At the meeting on September 16-17, the regulator cut it by 0.25 p.p., to 4-4.25%, to support economic growth amid a weakening labor market. However, at a press conference after the meeting, Powell made it clear that this move does not mean the beginning of a large-scale easing cycle, Barron's noted. The Fed chief called the rate cut a manifestation of "risk management" and warned that further actions will depend on labor statistics and the state of the economy. In addition, the Fed chief reiterated that the regulator will not succumb to political pressure. "We are working as we always have," he said.

The Fed's updated so-called dot plot now projects three rate cuts in 2025 instead of two, as expected in June, Barron's notes. At the same time, there is no consensus within the regulator: the decision is actually held by a minimal preponderance of votes (10 vs. 9 out of 19 participants), which economists call "soft median" and consider a sign of lack of consensus on the future course of policy.

This article was AI-translated and verified by a human editor