Fed's Powell Addresses Economy Pulled Between Risks to Growth, Jobs and Prices

• The Fed is facing a rare and contradictory economic environment, characterised by stronger-than-expected growth (with growth estimated near 4.0%), coupled with a potentially stagnant or declining job market indicated by negative private-sector job growth in September. Fed officials, like Governor Christopher Waller, noted that this contradiction, growth alongside negative job growth. is unsustainable, and one of the two metrics must soon adjust.
• The economic picture is further complicated by President Donald Trump’s policies, specifically tariffs and immigration restrictions, which economists worry could lead to the worst-case scenario: simultaneous higher inflation and higher unemployment. While investment is driving short-term productivity gains, the long-term cost of tariffs is expected to be passed to consumers, with projected inflation to remain above the target through next year.
• The decision-making is severely hindered by a U.S. government shutdown, which has delayed the release of critical official data, including the jobs report. This forces policymakers to rely on incomplete, private-sector indicators to gauge the job market's health before the meeting.
• Policymakers are divided between those who believe inflation remains unanchored and needs higher rates and those who fear the job market is on the verge of a fast slide and needs further rate cuts. Despite the risks, officials like Philadelphia Fed President Anna Paulson and Governor Waller currently view a path of cautious, quarter-point rate cuts this year as appropriate to balance inflation control with protecting the job market.
• Investors generally expect the Fed to proceed with two more this year, lowering the benchmark rate to the range. However, some analysts warn that if inflation expectations become unanchored due to the delayed pass-through of tariff costs, these expected cuts could be viewed in hindsight as a policy mistake

(Source: Reuters)