Full Text of Powell's Speech: Calls for a 50-basis-point rate cut remain subdued as downside risks to employment become a material concern.

Summary of Key Points from Powell's Regular Press Conference on September 17:

1. Monetary Policy: Today's action represents a risk management-type rate cut. There was not much support within the FOMC for a 50-basis-point rate cut.

Dot plot: Unprecedented economic conditions have caused significant divergence in Fed interest rate forecasts.

Labor market: Revised employment data indicates that the labor market is no longer as robust. The unemployment rate remains low but has risen; job growth has slowed, and downside risks have intensified, with labor market indicators showing that these risks are material. Artificial intelligence (AI) may be one of the reasons for the slowdown in hiring.

Inflation: The transmission mechanism of tariff-induced inflation has slowed, with a reduced magnitude of impact. The likelihood of 'stubborn tariff inflation' has diminished. U.S. PCE inflation is expected to rise 2.7% year-over-year in August, while core PCE is projected to increase by 2.9%. Disinflationary trends are likely to persist in the services sector. Long-term inflation expectations remain solid as a rock.

Fed Independence: The Federal Reserve is firmly committed to maintaining its independence. It would be inappropriate to discuss the lawsuit between Fed Governor Cook and President Trump; the Fed declined to comment on Bessent’s criticism, did not commit to an internal audit as he urged, but hinted that further layoffs might occur. In pursuing its dual mandate, the FOMC remains united.

Tariffs: Tariffs contributed 0.3-0.4 percentage points to core PCE inflation data.

On Wednesday, September 17, Eastern Time, the Federal Reserve announced after the Federal Open Market Committee (FOMC) meeting that the target range for the federal funds rate was lowered from 4.25% to 4.5% to 4.00% to 4.25%, a decrease of 25 basis points.

This is the first time the Federal Reserve has decided to cut interest rates in six FOMC meetings since the beginning of this year. Federal Reserve Chairman Jerome Powell stated at a press conference that although the unemployment rate remains low, it has slightly increased, new job creation has decreased, and the downward risks to employment are also rising. Meanwhile, inflation has recently increased and is still slightly above normal levels. At the same time, the Federal Reserve has also decided to continue reducing the size of its securities holdings.

During the Q&A session, he noted that there was not much support within the Federal Open Market Committee (FOMC) today for a 50-basis-point rate cut.

You can think of today's (easing) action as a type of interest rate cut for risk management.

In his opening remarks at the press conference, Powell stated that recent data shows that the growth of economic activity in the United States has slowed down. In the first half of this year, the GDP growth rate in the U.S. was about 1.5%, down from 2.5% last year, and this decline is mainly due to a slowdown in consumer spending. In contrast, corporate investment in equipment and intangible assets has increased compared to last year. Activity in the housing market remains weak.

In the economic forecast summary released by the Federal Reserve, the median expectation of FOMC members is that GDP will grow by 1.6% this year and 1.8% next year, slightly higher than the predictions made in June.

In terms of the job market, Powell stated that the unemployment rate rose to 4.3% in August, but there has not been much change compared to the past year, remaining at a relatively low level. In the last three months, the addition of non-farm jobs has significantly slowed down, with an average monthly increase of only 29,000. This slowdown is largely due to a deceleration in labor supply growth, attributed to a decrease in immigration and a decline in labor force participation rate.

However, he also noted that labor demand has weakened, and the current pace of job additions appears to be below the 'equilibrium level' required to maintain a stable unemployment rate. Powell stated that while wage growth remains above inflation, it has continued to decelerate.

Overall, both the supply and demand sides of the current labor market are slowing down, a situation that is not common. In this less dynamic and somewhat sluggish labor market, downside risks to employment have risen.

The median projection of the FOMC indicates that the unemployment rate will reach 4.5% by the end of this year, followed by a slight decline thereafter.

On inflation, Powell said that since its peak in mid-2022, the inflation rate has significantly declined but remains above the Federal Reserve’s long-term target of 2%. Based on estimates from the Consumer Price Index (CPI) and other data, the overall Personal Consumption Expenditures (PCE) price index rose by 2.7% over the 12 months ending in August; core PCE, excluding food and energy, increased by 2.9%.

He noted that these readings are slightly higher than at the beginning of the year, mainly due to a rebound in goods price inflation. By contrast, inflation in service prices continues to slow. Short-term inflation indicators have fluctuated, partly influenced by tariffs.

Over the next year or so, most measures of long-term inflation expectations remain consistent with the Federal Reserve's 2% target. The median forecast by FOMC members projects an overall inflation rate of 3.0% this year, declining to 2.6% by 2026 and further to 2.1% by 2027.

Powell stated that changes in U.S. government policies continue to unfold, and their impact on the economy remains uncertain. Higher tariffs have started to push up prices in certain categories of goods, but their effects on overall economic activity and inflation are yet to be observed.

He remarked that a reasonable baseline expectation is that the impact of tariffs on inflation would be a one-time event, resulting in a temporary rise in the price level. However, there is another possibility—that the inflationary impact could be more persistent—and the Federal Reserve’s responsibility is to ensure that a one-time price increase does not evolve into sustained inflation.

In the short term, inflation risks tilt upward, while employment risks lean downward—a challenging scenario. When our objectives conflict, our policy framework requires a balancing act between our dual mandate.

Given the increased downside risks to employment, the balance of policy considerations has shifted. Therefore, we deemed it appropriate to make a decision at this meeting to move closer to a 'neutral' policy stance.

In this Summary of Economic Projections, FOMC members individually recorded their personal assessments of the path of the federal funds rate based on what they considered to be the most likely economic scenario. The median projection indicates that the federal funds rate will reach 3.6% by the end of this year, 3.4% by the end of 2026, and 3.1% by the end of 2027. This rate path is 0.25 percentage points lower than the projection made in June.

Powell noted that these individual projections are subject to uncertainty and do not represent the committee’s plans or decisions:

Our policy is not on a preset course.

Below is the Q&A session of Powell's press conference:

Q1: You have welcomed a new Federal Reserve Board member, Steven Myron, today, but he retains his position in the White House. This marks the first time in decades that a Federal Reserve governor has had direct ties to the White House administration. Does this undermine the Fed’s ability to maintain political independence in day-to-day operations? Additionally, how do you plan to uphold public trust in the Federal Reserve’s political neutrality under these circumstances?

Powell: We do have a new committee member joining us today, as is often the case. The committee remains united in pursuing our dual mandate objectives. We are firmly committed to maintaining our independence. Beyond that, I don't have much more to share.

Q2: You and other Fed officials have frequently discussed the impact of tariffs on inflation. However, many companies now seem to be absorbing the tariff costs themselves, meaning that the tariffs may be having a greater effect on the labor market and other areas of the economy. Do you think the current weakness in the job market might be related to tariffs rather than inflation?

Powell: That's entirely possible. We've seen increases in commodity prices driving up inflation—most of this year’s inflationary pressures have been driven by commodity prices. Although the impact isn’t significant yet, we expect these effects to continue unfolding through the remainder of this year and into next year.

As for the labor market, it may also be affected, but I believe the main reason lies in changes in immigration patterns. There has been a noticeable reduction in labor supply, with almost no growth. At the same time, labor demand has also significantly decreased.

What we're seeing now is what I call a 'peculiar balance'—usually balance is a good thing, but this one is caused by a marked decline in both supply and demand. Especially since demand has fallen more sharply, which is one of the reasons why we are seeing an increase in the unemployment rate.

Q3: Does the current state of the economy and risk balance no longer support maintaining a restrictive policy? Under what circumstances would there be a rate cut larger than 25 basis points? Was this possibility seriously discussed at this week’s meeting?

Powell: I wouldn't say so. But what we can say is that this year, we have maintained a very clear restrictive policy—many people define 'restrictive' differently, but I believe our policy has indeed been restrictive. We were able to do this because the labor market was strong, with robust job growth, etc.

But if you look back, say from April onwards, and consider the revised employment data in July and August, you can no longer say the labor market is that strong. This means the risks are no longer clearly tilted toward inflation but are moving towards a more balanced direction. Perhaps not fully balanced yet, but clearly heading in that direction.

So today’s decision is another step towards a 'neutral policy.'

There was no broad support for a 50-basis-point rate cut today. You know, over the past five years, we have indeed had very large interest rate hikes and cuts, but those typically occur when you believe the policy stance is severely misaligned and requires rapid adjustment.

The situation is completely different now. I believe our current policy has performed well since the beginning of this year, and our decision to wait and observe changes in tariffs, inflation, and the labor market has been the right strategy.

What we are seeing now is a significant reduction in new job creation and other signs of a weakening labor market. This tells us that while risks may not yet be fully balanced, they are moving towards balance, making it appropriate for us to adjust our policy accordingly.

Q4: How should we interpret today's interest rate cut? Is the Committee 'hedging' against potential weakness in the labor market, or do you believe the dynamics of an economic slowdown are already underway? Why is your interest rate forecast more inclined towards cuts compared to three months ago, while your unemployment rate forecast remains largely unchanged?

Powell: You can view this interest rate cut as a 'risk management-based rate cut.'

If you look at our latest economic projections (SEP), forecasts for GDP growth this year and next have actually been revised slightly upward, while inflation and unemployment remain almost unchanged.

So, what has changed? Our risk assessment of the labor market has undergone a significant shift. During the last meeting, we were observing around 150,000 new jobs added per month. Now, looking at the revised and latest data, the situation appears markedly different.

I am not saying we should over-rely on non-farm payroll data, but this is one of many signs we are observing that show the labor market is clearly cooling down. Therefore, we must reflect this in our policy.

Q5: In the Summary of Economic Projections, the median forecast of committee members shows that inflation will be higher by the end of next year than previously expected, and it won't return to the 2% target until 2028. Does initiating a series of rate cuts now increase the risk of inflationary pressures?

Powell: We fully understand and take very seriously — we must be firmly committed to bringing inflation back down to 2% on a sustainable basis. And we will do so.

But at the same time, we also need to balance the risks between these two objectives. I believe that since April, the risk of persistently high inflation has somewhat declined, partly because the labor market has weakened and GDP growth has slowed.

So I would say the risks on the inflation front are not as high as they were before. On the employment side, while the unemployment rate remains relatively low, we are indeed seeing increased downside risks.

Q6: You cut rates due to employment concerns, but you've said the labor market issues are more due to reduced immigration, which isn’t something interest rates can address. So why is this more important than inflation? After all, inflation is still nearly a full percentage point above target.

Powell: What I meant earlier was that changes in the labor market are more related to shifts in immigration rather than tariffs — I said that in response to that specific question. I wasn't suggesting all labor market problems stem from tariffs.

This is indeed the situation now: labor supply has weakened due to reduced immigration, while labor demand has also significantly decreased, even declining faster. We know this because the unemployment rate is rising.

That’s what I meant by my earlier comment.

Q7: Since 2015, every year's Summary of Economic Projections has said, 'We will achieve the 2% inflation target within the next two years,' but it has never been achieved. This year, you're saying it won't happen until 2028. Does this suggest that the 2% inflation target is unrealistic? Will the public still believe you?

Powell: You’re correct; this year we forecast that we won’t return to the 2% inflation target until 2028. But that’s just how this forecasting process works.

Within this framework, we outline an interest rate path — one that we believe is most likely to bring inflation back to the 2% target, while also achieving maximum employment.

So it is more of a technical exercise in outlining a policy path rather than reflecting how certain we are about the economic trajectory over the next three years. No one can accurately predict the economy three years from now.

But the task of the Summary of Economic Projections is to outline, within that time frame, the mix of policies you believe will achieve your objectives.

Q8: The latest inflation report shows that prices continue to rise in key spending categories for many households. If these prices keep rising, what will the Fed do?

Powell: Our expectation — which you can see has been consistent with what we've been saying this year — is that inflation will increase this year, primarily due to the impact of tariffs on goods prices. But our forecast is that this increase will be a one-time price jump rather than evolving into a sustained inflationary process.

That has been our projection. And almost all individual projections by committee members show similar views. But of course, we cannot simply assume it will come true — our job is to ensure that it really is just a one-time event and does not turn into ongoing inflation. That is our responsibility.

The current situation is that we do see inflation continuing to rise, but perhaps not as much as we expected a few months ago. Because the transmission of tariffs into inflation has been slower and less pronounced than anticipated.

Additionally, there has been some softening in the labor market, so we believe the risk of inflation spiraling out of control has diminished.

That’s why we think it’s time to acknowledge that risks to our other mandate — employment — are also rising, and we should adjust toward a more neutral policy stance.

You ask, 'What will we do?' — We will do what we need to do. But we have two statutory mandates, and we strive to strike a balance between them. The framework we’ve used for a long time asks, when the two goals conflict, what do we do? Because our tools cannot address both directions simultaneously. We ask ourselves: Which goal is further from being achieved? Which will take longer to realize? And based on those judgments, we weigh our response.

In the past, we clearly leaned toward guarding against inflation because the risk of inflation was higher then. But now we see clear downside risks in the labor market, so we are moving toward a more neutral policy stance.

Q9: How should ordinary households, especially young people who are job hunting, interpret the current employment situation?

Powell: The labor market today is quite unique. We do believe that it is appropriate to lower interest rates now and move policy towards a more neutral stance, which would, to some extent, help improve the labor market.

We have noticed that people on the fringes of the labor market—such as recent university graduates and ethnic minorities—are indeed encountering greater difficulties in finding jobs. The current 'job-finding rate' is very low, meaning that people are securing jobs at a much slower pace than before.

On the other hand, the layoff rate is also low. This means we are in a state of 'low hiring, low layoffs.' Our concern is that if layoffs start to increase, those who lose their jobs will face an environment where 'no one is hiring,' which could quickly lead to a sharp rise in unemployment.

In a healthier economic environment, these individuals would be able to find jobs. But right now, hiring is very slow. Over the past few months, this issue has been increasingly concerning us. It is also one of the key reasons why we believe it is necessary to begin adjusting policies to achieve a better balance in fulfilling our dual mandate.

Q10: In the past, you used the term 'policy recalibration' when cutting interest rates. However, you did not use that term this time. You also emphasized that 'policy is not on a preset path.' Does this mean you deliberately avoided using the term 'recalibration'? Are we now in a phase of 'meeting-by-meeting decisions and data-by-data analysis'? Are we in the process of returning to a neutral policy? Does the divergence in committee members' forecasts also imply greater uncertainty in future policy paths?

Powell: I think we are indeed in a phase of 'decision by meeting, real-time judgment,' where we closely observe the data.

I would also like to take this opportunity to discuss the Summary of Economic Projections (SEP). As you may know, this forecast consists of 19 committee members independently writing down what they consider to be the 'most likely economic path' and the 'correspondingly most appropriate monetary policy path.' We do not debate or force consensus on these projections; we simply aggregate them into a chart. Sometimes we discuss it, but ultimately, it represents a collection of individual judgments.

We often say 'policy is not on a preset path,' and we truly mean it. Every decision we make is based on the latest data available at the time, changes in the economic outlook, and the balance of risks.

You may have noticed that in the summary of projections, 10 committee members predicted 'two or more interest rate cuts this year,' while the other nine believed there would be one or fewer cuts, or even no cuts at all.

Therefore, rather than viewing this as a definitive plan, I suggest considering it as a collection of 'various possibilities and their probabilities.' It is a distribution chart, not a fixed timetable.

This is an exceptionally unique moment. Typically, when the labor market is weak, inflation is also low; when the labor market is strong, we worry about inflation. But now we are facing 'two-way risks': downward pressure on employment, yet inflation is still not fully under control. This means there is no 'risk-free' policy path available.

This presents a very difficult situation for policymakers. Therefore, significant divergence in forecasts is understandable.

It is not merely a difference in judgment about economic prospects; more importantly, how should we balance when goals conflict? Which goal should we be more concerned about?

Under these unprecedented circumstances, divergence in forecasts is natural. In fact, if you told me everyone was in agreement, I would find that abnormal. We will sit down, have thorough discussions, engage in full debate, and then make decisions and take action. But you are correct, the differences in forecasts are significant, but they are understandable and acceptable in the current environment.

Q11: You have long emphasized the importance of the Federal Reserve's independence. However, there is much speculation in the market now, such as what President Trump intends to do with the Fed. In this context, what signs should the market focus on to determine whether the Fed is still making decisions based on economic conditions rather than political factors? Do you believe the lawsuit concerning Fed Governor Lisa Cook also touches upon issues of the Fed’s independence?

Powell: One of the core principles of our Federal Reserve culture is that all decisions are based on data and never consider political factors. This is deeply ingrained within the Fed, and every employee firmly believes in it.

You can see from how we discuss policy, the content of speeches by officials, and the decisions we make: we are still adhering to this principle. This is what we stand for in everything we do.

Regarding the issue of Lisa Cook, this is a court case, so I think it is inappropriate to comment on it.

Q12: The preliminary benchmark revision data from the U.S. Bureau of Labor Statistics shows a downward adjustment of 911,000 in new jobs. The June data revision was even the first negative figure since December 2020. Given the instability of the data itself, how can the Fed rely on them to make critical interest rate decisions? If this benchmark revision holds, it means that 51% of the originally estimated new jobs did not actually exist. This suggests that the job market was already much weaker earlier this year than we thought. If you had known this at the time, would you have decided to cut rates sooner?

Powell: Regarding this benchmark revision, the result was almost exactly as we expected. It was indeed very close, surprisingly so.

This is not the first time either. In recent quarters, employment data from the U.S. Bureau of Labor Statistics (BLS) has often shown 'systematic overestimation,' and they are well aware of the issue and have been working hard to correct it.

This is partly due to low response rates in business surveys, but more critically, it relates to what is known as the 'birth-death model.' Because many jobs are created by new businesses, and the 'births' and 'deaths' of these enterprises are difficult to investigate in real time, predictions must rely on models.

Especially during periods of significant structural change in the economy, this forecasting model becomes even harder to make accurate. So, they are indeed making improvements, and some progress has been achieved.

But what I want to say is that the overall data is still 'good enough' to support our decision-making. The main issue we are encountering with the data is due to low survey response rates, which is a widespread problem in both government and private sector surveys.

Of course, we hope for higher response rates, which would make the data more stable. To achieve this, the key is ensuring that the agencies responsible for data collection have sufficient resources. Fundamentally, this is not a complicated issue, but it does require investment.

Another point is that the response rate for employment data at the initial release is indeed low. However, in the second and third months, we continue to collect data, and by that time, the reliability of the data significantly improves. So the issue is not that 'we can't get the data,' but rather that 'we get it slightly later.'

You know, our job is to 'look forward,' not 'look backward.' We can only take the most appropriate actions based on what we see currently. And that's precisely what we did today.

Q13: Some marginal indicators in the labor market suggest that a recession may have already begun. For example, in August, the unemployment rate for African Americans exceeded 7%; average weekly working hours decreased; it became more difficult for college graduates to find jobs; and youth unemployment also rose. Against this backdrop, why do you believe that a 25-basis-point rate cut now will be effective?

Powell: I'm not saying that I think this 25-basis-point cut alone will have a significant impact on the economy. You need to understand it within the context of the entire interest rate path—market operations are based on expectations, and our market mechanism revolves around expectations. Therefore, I believe our policy path is indeed important.

When we see signs like these, I think it is necessary to use tools to support the labor market.

The phenomena I just mentioned—where you see rising unemployment rates among minorities, and where younger people, those more economically vulnerable or more sensitive to economic cycles, are affected—is also one of the reasons we see the labor market weakening, not to mention the overall reduction in new job creation.

I would also like to point out the issue of labor force participation—the decline over the past year may be more cyclical rather than solely due to population aging. Taking all these factors together, we see the labor market softening, and neither do we want it to worsen further, nor does it need to deteriorate further.

So we are using policy tools to respond, starting with a 25-basis-point rate cut. But the market has already been digesting the entire interest rate path. I am not 'endorsing' market pricing; I'm just saying: what we are doing now is not just a one-off action.

Q14: The current structure of economic growth appears to be rather complex—one side involves corporate investment, particularly AI-driven investment, while the other is driven by consumption from high-income groups. Do you believe that this growth structure might be unsustainable in the future?

Powell: I wouldn't say that. You're correct that we are indeed seeing unprecedented levels of economic activity in AI infrastructure and corporate investment. I don't know how long this trend will last—no one knows.

As for consumption, what you're seeing is consumer spending data far exceeding expectations, and this is likely driven by high-income groups, with plenty of evidence pointing to this. But regardless of who is spending, spending is still spending. So I believe the economy is still moving forward.

Economic growth this year is likely to reach 1.5% or higher, and it could be slightly better. From the forecasts we've seen, they are indeed being revised upward continuously.

In terms of the labor market, although there are downside risks, the unemployment rate remains low. This is our current assessment.

Q15: The Treasury Secretary recently stated that the Federal Reserve is facing issues of 'functional expansion' and 'institutional bloat.' He now supports an independent review. Would you support such an independent review? Or are you willing to reform certain aspects of the Federal Reserve?

Powell: Of course, I will not comment on statements made by the Treasury Secretary or any other official.

Regarding reforms at the Federal Reserve — we have actually just completed a relatively long and, in my view, very successful update process for our monetary policy framework.

I would also like to mention that there is currently a lot of behind-the-scenes work happening within the Fed. We are moving forward with an approximately 10% reduction in workforce across the entire Federal Reserve System, including the Board of Governors and the regional Reserve Banks.

This means that after completing this round of staffing reductions, the overall number of employees at the Federal Reserve will return to levels seen over a decade ago. In other words, we will have experienced zero growth in personnel numbers over the past ten-plus years. I believe there may be further actions ahead.

So, I can say that we are open to constructive criticism and any suggestions that could help us improve our work. We are always willing to explore ways to do things better.

Q16: There has been some recent discussion suggesting that artificial intelligence has started to impact the labor market — on one hand significantly boosting productivity, but on the other reducing demand for labor. Do you agree with this viewpoint? If true, what implications might it have for monetary policy formulation?

Powell: There is significant uncertainty in this area. Personally, this is somewhat speculative, but I think many people would agree that we are indeed starting to see some impacts, though these are not yet the primary drivers.

This phenomenon may be more pronounced among recent graduates. It is indeed possible that some companies or institutions that would traditionally hire university graduates are now more capable of utilizing AI, which might, to some extent, affect employment opportunities for young people.

But this is only part of the reason. Overall, job growth has indeed slowed, and economic growth has also declined. Therefore, it should be attributed to multiple factors working together.

AI may be one of those factors, but it is difficult to gauge how significant its impact really is.

Q17: What direct evidence do you currently see regarding the impact of tariffs on inflation?

Powell: We can look at the broad category of goods. Last year, inflation in goods was negative. If you look back over the past 25 years, it has been normal for goods prices to fall—even as quality improves, prices often decline.

But now, over the past year, inflation in goods has been about 1.2%. It doesn’t sound high, but that’s a significant change. Analysts have different opinions, but we believe that tariffs may have contributed around 0.3 to 0.4 percentage points to the current inflation rate of 2.9%.

The current situation is that most tariffs are not borne by the exporting country, but rather by intermediate enterprises between exporters and consumers. In other words, if you’re an importer who resells goods to retailers or uses them to manufacture products, you likely bear most of the costs yourself and haven't been able to pass all these costs on to consumers.

Most of these intermediaries have indicated that they will “definitely” pass on these costs in the future, but they haven’t done so yet.

Therefore, the transmission of costs to consumer prices remains very limited, much slower and smaller in magnitude than we expected. But based on the data we’ve seen, there is indeed a transmission effect from tariffs to inflation.

Q18: Could you share with us under what circumstances you would consider leaving the Federal Reserve before May next year?

Powell: I have nothing new to share today.

Q19: We often hear you say that you and your colleagues make decisions without considering political factors. However, you now have a new colleague from political circles who views everything through the lens of 'what benefits which political party,' and he still holds a position in the White House. How should the public and markets interpret his statements? For instance, his forecast influenced today’s release of the Summary of Economic Projections (SEP), particularly the median number of interest rate cuts this year, which changed because his forecast was incorporated. How would you respond to those in the markets and the public trying to understand your statements and policy intentions?

Powell: We have 19 FOMC participants, 12 of whom have voting rights at any given time as part of the rotation system, which you are also familiar with.

Therefore, no voting member can unilaterally alter the outcome — the only way to influence the overall decision is to present a highly persuasive argument. To achieve this, one must rely on robust data analysis and a deep understanding of the economy.

This is how the Federal Reserve meetings operate. This system is deeply embedded in the Fed’s culture and will not change based on any individual’s background.

Q20: Before this meeting, we heard many different voices, but today's session seems to have reached a stronger consensus than many expected. Could you elaborate on what factors led to such strong agreement? Meanwhile, the dot plot still shows significant divergence. Could you comment on both aspects: first, what drove the unanimous support for today's rate cut, and second, what caused such substantial disagreement about the path forward?

Powell: I believe there is now fairly broad consensus regarding the state of the labor market.

For instance, at the July meeting, we could still describe the labor market as robust, citing figures like 150,000 new jobs added per month. However, the new data we have received since then — not just the nonfarm payroll figures, but also multiple other indicators — suggest that the labor market is facing material downside risks.

I also mentioned back in July that we were already aware of these risks, but now, those risks have materialized, and conditions are clearly more strained. I believe this is widely accepted within the committee.

However, different members interpret this situation in varying ways. Nearly everyone supported today's rate cut, but some favor further cuts while others do not, as reflected in the dot plot.

That’s how it goes. We are all extremely serious about our work and constantly think through and discuss these issues. We continuously deliberate internally, and during formal meetings, we bring all perspectives to the table and ultimately make decisions.

You’re absolutely right; the dot plot does show significant divergence. However, given the historically unusual circumstances we face, this divergence is not surprising at all.

But let us remember, the unemployment rate is currently 4.3%, and GDP growth is around 1.5%. So we are not in a situation where the economy is 'terrible.' We have faced far more challenging periods than this.

But from a monetary policy perspective, the current situation is indeed very difficult to assess in terms of what to do. As I mentioned earlier, there is no 'risk-free' path at this point. No option is 'obvious.' We must closely monitor inflation while not losing sight of the goal of maximum employment. These are our two equally important mandates.

This is precisely why there are differing views on what should be done. Nevertheless, we still reached a high degree of consensus during this meeting and took action.

Q21: You just mentioned that the current level of new job creation is already below the 'minimum required to maintain employment balance.' I’m curious—what does the Fed currently estimate this 'balance level' to be? You’ve repeatedly highlighted downside risks in the labor market, but some economic activity and output indicators from Q3 actually appear quite robust, such as strong personal consumption expenditures. How do you reconcile these two aspects? Is there a possibility of an upside surprise in the labor market?

Powell: There are many ways to calculate this number, and none of them is perfect. But one thing is certain—it has dropped significantly. You could say the 'balance level' is now between 0 and 50,000 new jobs per month. You might be right or wrong because there are indeed many different estimation methods.

Whether it was previously 150,000 or 200,000—or whatever the estimate was a few months ago—it has now fallen sharply. This is because there has been a noticeable decline in the number of people entering the labor force.

We are hardly seeing any growth in the labor force now. Over the past two to three years, the main source of labor supply has been new entrants into the labor market, and that source has now dried up.

At the same time, labor demand has also declined significantly. Interestingly, supply and demand are essentially declining 'together.' However, we are indeed now seeing an increase in the unemployment rate—just slightly above the range maintained over the past year. An unemployment rate of 4.3% is still low, but the rapid decline in both supply and demand has drawn significant attention.

If such upside risk materializes, it would certainly be a great outcome. We would very much welcome that scenario. I don’t think there’s much conflict between these two factors. It is certainly good to see resilience in economic activity, much of which is driven by consumption. Earlier this week, data showed that consumption was much stronger than expected.

Moreover, we are now seeing another strong source of economic activity—business investment driven by AI.

Therefore, we will closely monitor all these areas. In the Summary of Economic Projections (SEP), we did raise the median forecast for GDP growth this year, between June and September. Meanwhile, projections for inflation and the labor market remained largely unchanged. The primary reason we acted today is because of heightened risks in the labor market that we observed.

Q22: Given the cumulative impact of high interest rates on the housing market, I would like to ask you: Are you concerned that the current level of interest rates may exacerbate housing affordability issues? Could this potentially further hinder household formation and wealth accumulation for certain populations?

Powell: The housing market is highly sensitive to interest rates and is one of the core areas influenced by monetary policy.

Remember when the pandemic broke out, and we lowered interest rates to zero; the real estate industry was extremely grateful for our actions at that time. They said they survived only because we significantly cut interest rates and provided credit support, allowing them to continue financing their operations. But this also means that when inflation rises and we raise interest rates, the housing sector will indeed be affected.

You are correct that interest rates have recently declined somewhat. Although we do not directly set mortgage rates, our policies influence them. A drop in rates typically boosts housing demand and also lowers financing costs for builders, which can spur new housing supply.

These factors do help alleviate some issues. However, most analysts believe that for interest rate changes to have a significant impact on the housing market, the rate adjustments would need to be very substantial.

On the other hand, from a longer-term perspective, we foster a strong and healthy economic environment by achieving maximum employment and price stability – which is also beneficial to the housing market.

But I want to emphasize one final point: there is a deeper issue at play here that monetary policy cannot resolve. That is the widespread shortage of housing across the country.

In many parts of the United States, housing supply is severely insufficient. For example, in metropolitan areas surrounding Washington, D.C., which are already highly developed, developers are forced to expand further outward, bringing structural challenges with it.

Q23: I would like to follow up on one point: At the press conference following the release of the previous Summary of Economic Projections (SEP), you mentioned that committee members lacked confidence in their forecasts. Do you still feel that way now?

Powell: Even during calm periods, forecasting is extremely challenging. As I’ve said before, economic forecasters are 'the group with the most reason to be humble,' but they themselves rarely have much room for humility.

At this particular juncture, the difficulty of forecasting is greater than ever before. Therefore, I believe that if you were to ask any forecaster whether they are confident in their predictions, I think their honest answer would be: no.

Q24: If you have already begun cutting interest rates, why continue with balance sheet reduction? Why not simply pause the contraction of the balance sheet?

Powell: We are indeed significantly reducing the size of our balance sheet. As you know, we are still in a state of 'excess reserves,' and we have previously stated that we would stop reducing the balance sheet when it reaches a level slightly above this threshold. We are now very close to that point.

From a macroeconomic perspective, we do not believe that balance sheet reduction has had a significant impact. It represents only small amounts within a vast economy. The current scale of asset reduction is not substantial, so I do not believe it will have macro-level effects on the overall economy at this stage.

Q25: In his nomination hearing, newly appointed Fed Governor Milan mentioned that the Federal Reserve actually has three mandates, which include not only maximum employment and price stability but also 'maintaining moderate long-term interest rates.' What does 'moderate long-term interest rates' mean? How should we understand it? Especially when observing fluctuations in the 10-year Treasury yield, how do you consider this goal when formulating monetary policy?

Powell: We have always regarded 'maximum employment' and 'price stability' as our dual mandate. As for 'moderate long-term interest rates,' we generally consider them to be a natural outcome of achieving low and stable inflation alongside maximum employment.

Therefore, we have not treated 'moderate long-term interest rates' as an independent mission requiring separate action for quite some time. In my view, we neither intend to, nor have we incorporated it differently into the policy-making framework.

Q26: We recently learned that the average FICO credit score in the U.S. has dropped by 2%, marking the largest decline since the Great Depression. At the same time, delinquency rates on personal loans and credit cards are rising. Are you concerned about consumers’ financial health? Do you believe today’s rate cut will help? Are you concerned that rate cuts could overheat financial markets or even fuel asset bubbles?

Powell: We have indeed taken note of this issue. Default rates are slowly increasing, and we are closely monitoring the situation. For now, the overall levels have not reached a particularly worrying threshold.

As for rate cuts, I don’t believe a single rate cut will produce significant improvements. However, over the long term, our goal is to achieve a strong economy and labor market, coupled with stable prices, all of which will contribute to improving consumers’ financial conditions.

We remain highly focused on our dual mandates: maximum employment and price stability. Our actions today reflect judgments made in pursuit of these goals. Of course, we are also closely monitoring financial stability conditions.

I would characterize the current situation as one of 'complex overall performance.' Household balance sheets are generally in good shape, and the banking system is robust. While we recognize that lower-income groups face greater pressures, from the perspective of financial system stability, we do not see systemic risks at this time.

We do not set ‘right’ or ‘wrong’ standards for asset prices, but we do monitor for structural vulnerabilities at a broad level. For now, we do not believe structural risks are elevated.

Q27: You have mentioned that the Federal Reserve cannot afford to be complacent about inflation expectations. You also noted an uptick in short-term inflation expectations. Could you elaborate on this? Additionally, regarding the long term, do you see controversies over the Fed’s independence or fiscal deficit issues exerting pressure on inflation expectations?

Powell: As you pointed out, short-term inflation expectations tend to respond to recent inflation data. In other words, if inflation rises, expectations rise as well, with the perception that it may take some time for inflation to ease.

However, throughout this period, long-term inflation expectations—whether measured by market ‘breakeven rates’ or nearly all long-term survey results—have remained very stable and consistent with our 2% inflation target. Although the University of Michigan's survey data has shown slight deviations recently, overall, long-term inflation expectations remain solid.

That said, we are not taking this lightly. We consistently assume that the Fed’s actions have real implications for inflation expectations, and we must continually reaffirm our commitment to the 2% inflation target through both action and communication. You will continue to hear us emphasize this point in the future.

Certainly, this is a unique moment because both of our mandates—employment and inflation—are facing risks, so we must strike a balance between the two. When both are at risk simultaneously, our task is to make trade-offs, which is precisely what we are striving to do right now.

As for the second part of your question — whether the debate over the Federal Reserve's independence affects inflation expectations, I haven't seen market participants incorporating these factors into their interest rate expectations.

Editor/joryn