Powell Says the Fed’s Walking a Tightrope: Cool Prices without Killing Jobs

With input from the New York Times, CNN, AP, and CNBC

The Federal Reserve is trying to thread a needle with oven mitts on. That was Jerome Powell’s message Tuesday as he warned there’s “no risk-free path” for policy while inflation and a softening labor market pull in opposite directions.

Speaking to the National Association for Business Economics, the Fed chair said the central bank is juggling a tricky mix: tariffs pushing some prices higher, hiring momentum fading, and a data blackout from the federal shutdown that’s muffling the usual economic gauges. Even so, Powell said the broad picture since the Fed’s September meeting “has not changed much.” Translation: inflation is still above target, but the job market is losing altitude.

The tension is obvious in how he framed rate cuts. Move too fast and the Fed risks leaving the inflation job unfinished; move too slow and the economy could take “painful” hits to employment. After trimming rates for the first time this year in September, officials penciled in two more reductions before New Year’s and another in 2026 — bets that would lower borrowing costs on mortgages, autos, and business loans if the outlook cooperates.

Policy whiplash from Washington is complicating the job. The administration’s tariff campaign has nudged the Fed’s preferred inflation gauge to about 2.9%. Small businesses are signaling more price hikes ahead, while hiring has cooled enough that there are now more unemployed workers than job openings. Powell stressed the Fed is leaning on private data and its nationwide network of contacts while official statistics are on ice, but that only goes so far when the picture is this noisy.

Inside the Fed, debate is getting spicier. Governors Michelle Bowman and Christopher Waller dissented back in July in favor of a cut, and at September’s meeting Stephen Miran — sworn in an hour before the decision — pushed for a bigger half-point move. Powell’s take: “We have a healthy debate,” but the destination is the same — get inflation down without breaking the labor market.

He also hinted the Fed could soon stop shrinking its $6.6 trillion balance sheet, a subtle shift that could take some pressure off longer-term Treasury rates. And he defended the pandemic-era bond-buying that’s now under heavy fire from critics in the administration, conceding with hindsight the Fed “could have — and perhaps should have — stopped…sooner,” but arguing those purchases kept markets from seizing up when the economy needed it most.

For markets, the message lands somewhere between reassurance and caution. Rate cuts are still on the table, but not on autopilot. Inflation has cooled from its peak, yet tariffs are adding friction. Jobs are still plentiful by historical standards, but the cushion is thinner. In Powell’s words, the Fed is navigating a “tension” between its goals. The tightrope is real; the safety net isn’t.