Chairman Powell says the U.S. economy may be on a “stronger trajectory than expected”
Although the U.S. labor market remains depressed through September with few jobs and layoffs, the overall economy “may be on a somewhat stronger trajectory than expected,” Federal Reserve Chairman Jerome Powell said Tuesday.
In what is expected to be the Fed’s last public remarks before its October interest rate decision, Chairman Jerome Powell said there is no “risk-free” path for policy as inflation remains above the Fed’s 2% target while the labor market shows signs of cooling.
Mr. Powell delivered the Adam Smith Award speech at the National Association for Business Economics in Philadelphia on October 14, defending the Fed’s balance sheet and participating in a question-and-answer session. His comments suggested the Fed remains on track to cut rates again at its two-day meeting on Oct. 28 and 29.
Despite discrepancies in federal data due to the government shutdown, he said, “The outlook for employment and inflation does not appear to have changed significantly since our September meeting.”
But he said data available before the shutdown showed the overall economy “may be on a slightly more robust trajectory than expected.”
In his remarks, Powell noted that the 12-month core PCE inflation rate in August was 2.9%, up slightly from the start of the year, and that there were “significant downside risks” to the labor market. Employers added just 22,000 jobs in August, according to the latest publicly available Bureau of Labor Statistics employment report, but private sector data released since then shows a further cooling.
Fed considers non-government data during shutdown
Powell said the Federal Open Market Committee will continue to follow its meeting schedule and make decisions based on available data. Powell said that in the absence of the BLS’s main employment report, the committee would consider alternative sources of information, such as state-level unemployment claims reports and ADP’s national employment report, which found that U.S. private employers cut 32,000 jobs in September.
“In general, the private and alternative data we consider is better used as a supplement to the underlying government data, and this is the gold standard,” Powell said. “If you take it as a supplement, it won’t be as effective as the main course.”
The department announced that it will release the September Consumer Inflation Report (CPI) on October 24 to help the Social Security Administration determine annual cost-of-living adjustments for 2026. That means FOMC members will have an opportunity to review the report before their two-day meeting at the end of October.
Tariffs and Fed balancing measures
Powell highlighted the dual mandate of stabilizing prices and maximizing employment, acknowledging the risk that tariffs could contribute to sustained inflation rather than a one-time adjustment if they are passed through to consumer prices more slowly than expected.
Tariffs pose a challenge for the Fed because they could both raise consumer prices and slow economic growth, forcing the central bank to walk a delicate tightrope.
“If we act too quickly, we could leave inflation work unfinished and have to come back later and finish it,” Powell said. “Moving too slowly could result in unnecessary and painful losses in the job market.”
Contact Rachel Barber rbarber@usatoday.com X Follow her at @rachelbarber_
