Powell: "Inflation Target Approaching... Labor Market Cools from Overheating, Shift in Risk Balance"

Jerome Powell, Chair of the U.S. Federal Reserve System (Fed), indicated that inflation is nearing its target and the labor market has shifted from overheating to a cooling phase, suggesting a cautious adjustment in monetary policy.

On the 22nd (local time), Powell stated at his Jackson Hole Symposium speech, "Despite significant changes in the policy environment this year, the U.S. economy has shown resilience," and, "The labor market remains close to maximum employment, and while inflation is still somewhat elevated, it has dropped considerably from post-pandemic highs."

Powell mentioned that the policy stance was recalibrated in the last three Federal Open Market Committee (FOMC) meetings, adding, "Over the past year, we have set the stage for the labor market to remain balanced." However, regarding recent economic indicators, he explained, "GDP growth slowed to 1.2% in the first half of the year and job growth has also declined sharply," presenting new challenges ahead.

He pointed out that changes in trade and immigration policy are impacting both demand and supply. He emphasized, "With both labor supply and demand declining simultaneously, an unusual equilibrium is emerging," and, "This situation is increasing downside risks to employment."

Regarding inflation, he noted, "Higher tariffs have pushed up prices for some items, and the core Personal Consumption Expenditures (PCE) index rose 2.9% as of July." Powell stressed, "While the impact of tariffs is likely to be a short-term factor, we cannot rule out the possibility of a wage-price spiral," and, "The Fed will never tolerate temporary price increases turning into persistent inflation problems."

Regarding the Fed's policy stance, he stated, "When our dual mandate of price stability and maximum employment is in tension, a balanced approach is needed," and, "Policy will not follow a predetermined path but be flexibly adjusted according to economic conditions and the balance of risks."