According to Powell, data prior to the U.S. government shutdown suggested that economic growth was stronger than expected, with the economy returning to September levels. However, tariffs continue to increase price pressures, complicating the fight against inflation.

“The Fed must move carefully. Acting too quickly could leave the inflation battle unfinished,” Powell warned. He added that ending balance sheet expansion earlier would have made little difference, noting that balance sheet management remains a key tool of monetary policy.

Fed Nearing End of Balance Sheet Reduction

Powell indicated that the Federal Reserve could end its balance sheet reduction process in the coming months. This development comes amid signs of mild tightening in money markets. “We’re not far from our target, but there’s still some way to go,” he said, stressing that reserves remain abundant.

The Fed Chair also cautioned that a further decline in job openings could push unemployment higher. Research shows that the effects of monetary policy on employment and inflation take longer to materialize, making sudden policy shifts risky.

Powell warned that the slow pass-through of tariffs could pose a risk of persistent inflation, while declining to comment on gold or Bitcoin prices. “Inflation is driven by fundamental supply and demand factors,” he said, reaffirming the Fed’s data-dependent policy approach.

Powell’s remarks suggest that the Fed will remain data-driven and cautious in the months ahead. Markets are closely watching new signals regarding interest rates, balance sheet policy, and the inflation outlook.

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On September 17, 2025, the Fed lowered its policy rate to the 4.00–4.25% range. Fed Chair Jerome Powell highlighted risks to inflation and employment, stressing the central bank’s commitment to independence. 

Following the rate cut, the Dow Jones gained 0.6% to 46,018.32 points. The S&P 500 fell 0.1% to 6,600.35 points, while the Nasdaq rose slightly by 0.3% 

Powell’s Remarks: Inflation and the Economy 

Powell stated, “We remain committed to achieving our goals for the benefit of the American people.” He noted that economic growth is showing moderate momentum, but labor market risks are rising while inflation remains elevated. 

He added that inflation has eased from its 2022 highs but tariff effects still need monitoring. On policy direction, Powell emphasized: 

“The Fed will continue to act independently. We are strongly committed to that.” 

“There was little support among members for a 50 bps cut.” 

Powell stressed the Fed can act quickly if necessary, but sees no immediate need for aggressive rate moves. According to Fed projections, inflation expectations align with the 2% target next year, and tariff-related price pressures should be temporary. The labor market slowdown and weaker demand suggest a cautious pace ahead. 

2025 Fed Rate Decision Calendar 

• September 2025: Rate cut to 4.00–4.25% 
• October 29, 2025: Next decision 
• December 10, 2025: Final decision of the year 

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Targeting Jerome Powell, Trump said, “A smart person would have cut these rates long ago,” thus putting the economy card back on the table for the presidential race. 

Despite this pressure, the Fed remains on course. According to CME FedWatch Tool data, the probability of keeping rates unchanged at the July 30 meeting has reached 96.9%. If this happens, the Fed will have left rates unchanged five times this year. The current rate range would remain at 5.25% – 5.50%. 

Fed’s Cautious Stance Continues 

Jerome Powell and the Committee have made rate decisions throughout the year based on data. They analyze factors such as Trump’s trade policies, high housing costs, and core inflation and are in no rush to change rates. 

BlackRock CIO Rick Rieder said a rate cut would lower housing prices and soften inflation. San Francisco Fed President Mary Daly stated that two rate cuts this year would be reasonable and cautioned that keeping rates too long unchanged could pose risks. 

Market Still Expects Rate Cuts 

According to Polymarket data, the probability of two rate cuts is 38%, a single cut is 23%, and no cuts stand at 20%. Additionally, the market prices in a 10% chance of three cuts this year. 

The Fed will also meet in September, October, and December, so rate cut expectations are not fully dismissed. Jerome Powell’s post-meeting statements will guide investors, and the released meeting minutes will clarify the Fed’s position for the remainder of the year.

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A report released by the US Commerce Department on Friday indicated a slight slowdown in consumer spending last month. The easing price pressures and cooling labor market could bolster the Fed’s confidence that inflation is moving towards its 2% target.

The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 0.1% in June, following a flat reading in May. This suggests that inflationary pressures may be easing.

“The key question now is whether the positive momentum we’ve seen over the last three months will continue through to the September meeting,” said Olu Sonola, chief US economist at Fitch Ratings. “While the Fed will have one eye on recent labor market developments, it’s likely to use the upcoming meeting to set the stage for a rate cut in September.”

Kathy Bostjancic, chief economist at Nationwide, noted that the improving inflation data suggests that the surge in inflation seen in the first quarter was transitory. “Moreover, if rent inflation has finally peaked as the latest data suggests, then inflation appears to be returning to a more sustainable downward trend,” she said.

As demand in the economy has cooled in response to the Fed’s aggressive monetary policy tightening in 2022 and 2023, the pace of economic growth has slowed. While the economy grew at an average annual rate of 2.1% in the first half of this year, it expanded at a 4.2% pace in the second half of 2023.

Economists at Bank of America Securities estimate that approximately $400 billion of excess savings accumulated during the COVID-19 pandemic remains, but at the current pace of depletion, it could be exhausted by the end of the year.

“Elevated savings have been supporting consumer spending and likely encouraged more saving for precautionary reasons,” said Veronica Clark, an economist at Citigroup. “But overall spending seems to be slowing more than income, which is consistent with lower saving. Conversely, a very low savings rate could signal the risk of a sharper decline in spending as the labor market weakens.”

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