Jerome Powell Sees 'Challenging Situation' Ahead, Says There Is No Risk-Free Path

Federal Reserve Chair Jerome Powell said on Tuesday that there is a“challenging situation” facing the central bank as it tries to balance both sides of its dual mandate: stable prices and maximum employment.

“Near-term risks to inflation are tilted to the upside and risks to employment to the downside - a challenging situation. Two-sided risks mean that there is no risk-free path,” Powell said.

The Fed Chair stated that the weakness in the labor market prompted the central bank to cut the policy rate by 25 basis points last week.

Powell also stated that while the Fed's current monetary policy is“moderately restrictive,” it leaves the central bank with the option to respond to economic developments and steer the policy as needed. Last week, the Fed cut the key borrowing rate by 25 basis points, bringing down the federal funds rate to the 4% to 4.25% range, in line with market expectations.

As for the labor market, Powell highlighted that both the supply and demand for workers have slowed, describing the situation as“unusual and challenging.” On the inflation front, Powell said that while it has“eased significantly” from the highs of 2022, it“remains somewhat elevated relative to our 2 percent longer-run goal.”

Data from the CME FedWatch tool shows there is a 91.9% possibility of the central bank cutting the interest rate by 25 basis points in the October meeting.

Earlier on Tuesday, Fed Governor Michelle Bowman warned of a risk of layoffs.“If demand conditions do not improve, businesses may need to begin to lay off workers, recognizing that it will not be as difficult to rehire given the shift in labor market conditions,” she said.

Meanwhile, U.S. equities declined in Tuesday's afternoon trade. At the time of writing, the SPDR S & P 500 ETF (SPY), which tracks the S & P 500 index, was down 0.38%, while the Invesco QQQ Trust (QQQ) fell 0.44%. Retail sentiment around the S & P 500 ETF on Stocktwits was in the 'bullish' territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.16% at the time of writing.

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