Fed chair cites dual risks over jobs, inflation as politics loom

Allegations that the Federal Reserve’s policymaking has been tainted by left-leaning political pressures are pure poppycock.

According to Fed Chair Jerome Powell, the turgid political relationship between the independent central bank and the White House has not yet influenced U.S. monetary policy.

“We’re looking at what’s the best thing for the people that we serve,” Powell told reporters after a Sept. 23 speech in Warwick, R.I.

•  He said partisan politics hasn’t trickled down into Fed decision-making despite multiple allegations by President Donald Trump and his allies.
• This includes the prior week’s vote to lower the Federal Funds Rate for the first time this year by a quarter percentage point due to weakness in the labor market.

“We’re just not looking at things that way,” Powell said regarding partisan allegations.

“It’s just a cheap shot,” he added.

Fed independence is key to solid economic gains

Powell, other Fed officials, outside economists, and market watchers insist the decisions to raise or lower the benchmark Federal Funds Rate are not made to favor Democrats or their platforms. 

They maintain that interest-rate decisions are data-driven, and the Fed’s independence from politics is key to solid economic ground at home and abroad.

White House targets Fed reform as a priority

Trump has been heaping reams of demands for the central bank to slash the benchmark Federal Funds Rate by as much as three percentage points.

• In addition, the president has installed Stephen Miran, the head of the White House Council of Economic Advisors, to fill a temporary slot on the Board of Governors.
• Trump also has tried to fire Fed Governor Lisa Cook over unsubstantiated allegations of mortgage fraud. That case is now before the Supreme Court, which ordered Cook to present her arguments by Sept. 25.

Powell, other Fed officials and outside economists insist the decisions to raise or lower the benchmark Federal Funds Rate are not made to favor Democrats or their platforms.

Related: BLS delays key consumer spending data as trust questions grow

Interest-rate decisions are data-driven at the independent central bank, they maintain.

Federal Reserve balances inflation, jobs

The Federal Reserve’s dual mandate from Congress requires price stability and fullemploymentt.

• Lower interest rates lead to less unemployment but higher prices.
• Higher interest rates lead to lower inflation but higher unemployment.

The Fed held off cutting the Federal Funds Rate this year to monitor the impact of tariff inflation on the nation’s supply chain and determine whether those price increases would be a one-time bump or linger in consumers’ wallets.

The funds rate is now 4.0% to 4.25%. The widely respected CME Group FedWatch Tool reports a 94.1% chance of another quarter-percentage point cut at the Oct. 29 meeting.

Powell speaks on the risks balancing the Fed’s mandate

Powell’s most recent speech did not vary much at all from his comments following the Sept. 17 Federal Open Market Committee.

He didn’t give hints as to when the next interest-rate cut would occur, although the Fed’s own forecasts for the rest of the year indicate there could be at least one, if not two, more quarter-percentage cuts in 2025.

“In the labor market, there has been a marked slowing in both the supply of and demand for workers — an unusual and challenging development. In this less dynamic and somewhat softer labor market, the downside risks to employment have risen,” Powell said.

Inflation has eased significantly from its highs of 2022 but remains somewhat elevated relative to the Fed’s 2% target goal, Powell said.

Powell also reinforced that tariff increases were likely to lead to one-time increases in prices that could take time to work through supply chains and into consumers’ wallets.

“A ‘one-time’ increase does not mean ‘all at once,'” Powell said.

Near-term risks to inflation “are tilted to the upside and risks to employment to the downside — a challenging situation. Two-sided risks mean that there is no risk-free path,” Powell said.

Jobs versus inflation: Experts weigh in

Will continued softness in the labor market take priority over inflation?

Oren Klachkin, an economist at Nationwide, said in a note after the speech that Powell “wasn’t as dovish as markets were probably hoping for, somewhat mirroring his tone at last week’s press conference.”

But Powell “still sees tariffs as a one-time adjustment to the price level, which should give him the green light to continue easing,” Klachkin said in his note, first reported by Bloomberg.

Adam Sarhan, CEO of 50 Park Investments, told Reuters that “Powell has made it very clear there’s still uncertainty with respect to inflation, and inflation still remains elevated. It’s not a deal breaker… but it’s not an all-clear, either.

“So we’re in a situation now where we’re likely to continue to get small, slow-and-steady modest cuts from the Fed, but anyone who was expecting like a 200-basis-point cut most likely that’s not going to happen, until inflation comes down,” Sarhan said.

Related: Federal Reserve official pushes big interest-rate cuts

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