Federal Reserve Chairman Jerome Powell said the outlook for the labor market and inflation faces risks, reiterating his view that policymakers will likely face a difficult road as they consider further interest rate cuts.

"Near-term risks to inflation are tilted to the upside and risks to employment are tilted to the downside—a challenging situation," Powell said Tuesday in prepared remarks for an event at the Greater Providence Chamber of Commerce in Rhode Island. "These two-sided risks mean there's no risk-free path."

Powell offered no indication whether he would support a rate cut at the Fed's next meeting, in October. Powell's remarks were strikingly similar to those he made at a press conference on September 17 after Fed policymakers lowered the central bank's benchmark interest rate to a range of 4%-4.25%, the first cut in 2025. Powell described the move in that press conference as a "risk-management cut" aimed at responding to growing warning signs in the labor market.

The latest data, along with revisions to previous figures, point to a sharp slowdown in job creation, which officials are reviewing. The process is complicated by a decline in labor supply amid President Donald Trump's increasingly stringent immigration enforcement policies.

"There has been a marked slowdown in both labor supply and demand—an unusual and challenging development," Powell said. "In this less dynamic and somewhat weaker labor market, the risks of job losses have increased."

However, Powell on Tuesday continued to argue that the Fed must remain vigilant about the possibility that Trump's tariffs are causing lasting inflationary impacts. He said the tariff increases would likely take time to penetrate the supply chain, resulting in one-time price increases that could spread over several quarters. He added that favorable prices are driving up inflation.

"Incoming data and surveys suggest that these price increases largely reflect higher tariffs, rather than broader price pressures," Powell said.

The challenges facing Fed policymakers are reflected in the diverse views among officials on the best path for interest rates. In the latest quarterly projections released after last week's meeting, policymakers forecast two additional quarter-point interest rate cuts this year, according to the median estimate.

However, some also predicted one additional cut or no cuts in 2025. Some policymakers continue to advocate a cautious approach to further rate cuts, given that inflation remains above the Fed's 2% target. (alg)

Source: Bloomberg