Fed Signals Policy Shift Amid Economic Crosswinds

Federal Reserve Chair Jerome Powell has outlined a cautiously evolving economic outlook for the United States, reflecting on the turbulent aftermath of the pandemic and global financial crises, as well as the Fed’s adaptive response to these events.

Powell noted that the U.S. economy continues to demonstrate resilience despite new headwinds from changing trade, immigration, and regulatory policies, which are still in flux. Recent economic data show that growth has moderated, with GDP expanding by about 1.5% in the first half of 2025—down from last year’s pace—primarily due to a slowdown in consumer spending. While unemployment remains low at 4.3%, job gains have slowed, and the labor market is softer, with fewer job openings and payroll additions running below the rate needed to maintain steady unemployment. Inflation, though well below its 2022 peaks, has risen to 2.7% in August, partly fueled by higher tariffs that are expected to raise prices over several quarters, though these effects are anticipated to be temporary. Powell emphasized heightened uncertainty around both inflation and employment, acknowledging that the Fed must vigilantly balance the risk of letting inflation linger against the danger of tightening policy to the detriment of jobs.

In response to these shifting risks, the Fed recently moved to a more neutral policy stance, lowering the federal funds rate by 25 basis points to a range of 4 to 4.25 percent, a move intended to keep options open as new data emerge. Powell made it clear that future actions will depend on economic developments, and reiterated the Fed’s commitment to achieving both stable prices and maximum employment. This measured approach underscores the significance of maintaining flexibility in monetary policy during unpredictable times, with the ultimate goal of supporting a stable and prosperous economy for all Americans.