Powell called this rate cut a risk management decision. The policy focus has shifted from inflation to employment.

On Wednesday, after the Federal Reserve announced its latest interest rate decision, Chairman Powell stated at a press conference that this rate cut action was a "risk management" move. With the labor market cooling off, inflation still higher than the target with short-term upward risks, the committee chose to take a step towards a more neutral policy stance while maintaining a "meeting-by-meeting" approach to allow for flexible adjustments based on data and risks. Starting from the macroeconomic situation, Powell noted that recent indicators show a slowdown in economic momentum, with the US GDP growth rate in the first half of this year at around 1.5%, lower than last year's 2.5%. Consumer spending has slowed down significantly, while business investment has slightly improved from last year and housing-related activities remain weak. In the latest economic forecasts (SEP), the Fed expects GDP growth of 1.6% this year and 1.8% next year, slightly revised upward from June. In terms of employment, "labor demand has softened," with only an average of 29,000 new non-farm jobs added in the past three months, significantly lower than the "breakeven growth rate" needed to maintain a stable unemployment rate. The unemployment rate remains low but has been "edging up marginally," indicating rising downward risks for employment. Wage growth continues to moderate slightly but remains slightly higher than inflation. Powell emphasized that over the past year, both labor supply and demand have slowed down, with demand slowing faster, leading to an increase in the unemployment rate and a cooling in job creation. On inflation, Powell pointed out that inflation has clearly fallen from its peak but is still "above the 2% long-term target." Based on CPI and other data, the year-on-year PCE inflation rate was around 2.7% in the 12 months ending in August, excluding food and energy, core PCE inflation was around 2.9%. The recent increase in inflation is mainly driven by a rebound in commodity prices, while weakness in service inflation continues. Short-term inflation expectations have risen due to tariff news, but longer-term inflation expectations remain anchored around 2%. Powell reiterated that the basic scenario regarding tariffs still involves a "one-time level shift in prices," but he did not rule out the possibility of more persistent inflation effects, and the committee's responsibility is to prevent a "one-time level shift from turning into a sustained inflation issue." In terms of the policy path, the dot plot shows a median year-end interest rate of around 3.6%, 3.4% in 2026, and 3.1% in 2027, down 25 basis points overall from June. This implies that most officials expect a further rate cut this year. Meanwhile, the balance sheet reduction will continue. Powell explained that the banking system is still in a "plentiful reserve" position, and the current reduction in assets on the balance sheet has limited impact on the macroeconomy, being more of a technical operation done without disrupting the environment. When asked why a rate cut was implemented even though inflation remains high, Powell responded that it could be seen as a "risk management" insurance cut. Growth forecasts have been slightly revised upward, but the risk structure for employment has changed significantly, with employment indeed cooling off, which the committee needed to reflect in its policy setting. Responding to a follow-up question on whether the slowdown in employment was partly due to a deceleration in immigration while inflation remained significantly above target, Powell explained that both labor supply and demand had slowed down, with demand slowing faster, leading to an increase in the unemployment rate; thus, the committee had to balance between the dual mandate. The recent upward trend in inflation has eased compared to a few months ago, while the risks of a downturn in employment have increased. Regarding the need for "restrictive policies" in the current conditions, Powell stated that it's not the case. The Fed has maintained a "significantly tight" stance so far this year because the employment situation has been "very robust" before, but now the risks are more evenly balanced, with data pointing towards a move towards a more "neutral" stance. As for considering a 50 basis point rate cut, Powell explicitly stated that there was "not broad support" for this, and it was not the moment to "quickly shift policy to another position." Tariffs and the transmission of inflation were also focal points. Powell mentioned that over the past year, "goods inflation was around 1.2%" contributing possibly 0.3-0.4 percentage points to core PCE. On the burden bearers, more costs have been absorbed by import and distribution companies, with the transmission to consumers being slower and smaller than expected, but businesses generally plan to gradually pass on the costs. If prices unexpectedly rise again, the Fed will "take necessary action," but in the unusual environment of a "dual mandate tension," a dynamic balance between the distance from the target and the time needed to return is required. In terms of financial stability and asset valuation, Powell stated that the Fed's primary focus is on "maximum employment and price stability," monitoring financial stability risks closely. However, he mentioned that the current structural vulnerabilities do not appear to be high. Regarding revisions to employment data, the statistical system is improving models and response rates, and decisions are made based on the windshield rather than the rearview mirror, emphasizing the need to focus on balancing present risks. Concerning independence and governance, the media asked about whether the association between Board members and the administration has affected the Fed's image and independence. Powell responded that new members are welcome, but the committee jointly pursues the dual mandate and remains "firmly committed to independence." Powell emphasized that being data-driven is "deeply ingrained in our institutional DNA," and the influence of the 19 participants and 12 voters can only be achieved through "strong data-based arguments," and the "long-running independence" of the institution will not change. Regarding the lawsuit involving Board member Cook, Powell declined to comment. Reporters also raised issues related to the pressures faced by young people and ethnic minorities in employment, the potential impact of AI on the labor market, consumer stratification, and housing affordability. Powell stated that graduates and ethnic minorities face greater challenges in job searches, with a combination of low dismissal and low recruitment rates increasing risks. If broader layoffs occur, the low recruitment rate will amplify the impact, another reason for the policy focus to be more balanced. Regarding AI, he believed it "may be a factor, but the evidence and magnitude are still uncertain." In terms of housing, monetary policy naturally affects demand and supply through interest rate channels, and a rate cut can help restore demand and supply, but significant improvements usually require larger changes. Deeper supply shortages are not just a cyclical issue and go beyond what monetary policy alone can solve. Regarding market pricing and forward guidance, the space for further easing within the year shown on the dot plot and the market's bet on the "rate cut path" are not a "preset course." Powell repeatedly emphasized that policy is not on a pre-set path, as the divergences reflect different tolerances and risk assessments of the "dual mandate tension." The current 4.3% unemployment rate and around 1.5% growth are not indicators of a "bad economy," but there are no risk-free paths for policy, requiring a focus on inflation and maximum employment. Therefore, the committee will continue to anchor its decisions on data and risks, dynamically calibrating the pace and magnitude accordingly.