After three days of record highs, Wall Street is in the red.
Jerome Powell, the Fed’s chairman, spoke publicly for the first time since he voted last week on America’s benchmark interest rates.
Investors were hoping he’d outline upcoming interest rate cuts. He did not.
The Fed has a dual mandate to keep inflation around two percent and increase job growth through the government’s borrowing rates.
Rates are used as a blunt tool, swinging higher when prices climb, and plunging when unemployment accelerates.
Last Wednesday, the Federal Reserve’s 12-person voting board cut America’s benchmark interest rate by a quarter percentage point. It was the first cut since December 2024.
Since the meeting, Wall Street has been on a tear, believing that the next meeting would bring even more cuts, making it easier to spend and invest cash.
However, Powell said the vote was tricky, following August data that showed more Americans were lining up at unemployment offices, and prices at grocery stores, mechanic shops, clothing retailers, and restaurants jumped.
Fed Chair Jerome Powell spoke for the second time since the decision to cut rates
Instead, on Tuesday, Powell said he is keeping a closer eye on jobs data, after hawkishly following pricing and spending data for years in an effort to combat inflation.
‘The unemployment rate is low but has edged up,’ he said. ‘Job gains have slowed, and the downside risks to employment have risen.
‘In recent months, it has become clear that the balance of risks has shifted, prompting us to move our policy stance closer to neutral at our last meeting.’
Powell also said he thinks companies are responding to tariffs by slowing down hiring.
‘Companies are holding off, they’re not hiring,’ Chair Jerome Powell said at a luncheon on Tuesday. ‘That may be a way of passing off tariff costs.’
For months, analysts have been warning that President Donald Trump’s tariffs would raise costs on Americans.
However, Powell said he has seen smaller-than-expected price spikes from tariffs.
In April, when Trump initially unveiled his tariff plans, the Budget Lab at Yale University estimated that American households could face additional costs of up to $4,400 a year.
Fed Chair Jerome Powell warned on Tuesday that American companies are not immediately replacing employees – clearing some payrolls might be a way they’re paying for tariffs
So far, that hasn’t happened: In May, the inflation rate dropped to 2.4 percent before climbing back to 2.9 percent in August.
And Americans continue to spend, despite the slightly higher prices. Last month, consumer spending moderately rose.
Powell’s comments also come a day after Stephen Miran, the Trump-backed governor who was temporarily appointed to the Fed last week, warned that a slow pullback of interest rates risks job losses.
Miran was the only voting member who wanted a half-point cut.
This morning, Austan Goolsbee, the President of Chicago’s Fed, told CNBC that the decision to cut rates despite higher-than-average inflation was not a sign that the Fed moved its consumer pricing goals.
‘Heck no, we did not move the target,’ he said. ‘The target is 2 percent. We have to get inflation back to 2 percent, period.’
