Powell says risks to inflation are to the upside. Risks to labor market are to the downside.
The Fed’s live Press conference was interesting. I made some notes.
Someone marked the YouTube I posted as “private”.
You can Replay the Video from the Fed website.
Powell Comments
- Its a “challenging, unusual situation”. It’s unusual because inflation normally declines with weak labor markets.
- The balance of risks has shifted from inflation to the labor markets. Tariff-related inflation is observable in goods but passthrough has been low, so far. The Fed is open to the possibility of higher inflation passthrough.
- Powell declined to comment on Trump’s new Fed appointee, Stephen Miran.
- Policy path is not pre-determined.
- “Think of this as a risk-management cut. There are no risk-free paths. It’s not obvious what to do.”
- Job creation is below the break-even point. Unemployment is ticking up, but from a low level.
- Consumption is stronger than expected.
- “The risks to the labor markets were the focus of today’s decision.”
- Housing is a secular problem the Fed cannot control.
- No one on the Fed has great confidence in their forecasts.
- The Fed is aware of rising default rates but it’s not a big problem yet.
- In response to a question on bubbles and the stock market, Powell responded: “We don’t have a view” on asset prices. The Fed is concerned with its dual mandate.
The comment on bubbles is telling. The Fed blows them repeatedly then cleans up the mess it makes.
It was the Fed who created the housing mess by holding rates too low, too long, and unwarranted QE. Powell denies all responsibility.
And once again the Fed does not see the bubbles it has created.
Related Posts
September 17, 2025: Fed Cuts Interest Rates 1/4 Point, Trump’s New Fed Lapdog Dissents
Stephen Miran, Trump’s new appointee voted for a 1/2 point cut.
Fedthink! The Fed Is Incompetent by Design
In case you missed it, please see Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed
Is the Fed playing politics? Does the Fed know what it’s doing at all?
We are trapped in “Fedthink”, especially the nonsensical proposition that two percent inflation is a good thing despite the fact that the Fed is clueless on how to measure inflation in the first place.
Addendum
Someone marked the YouTube I posted as “private”.
You can Replay the Video from the Fed website.
On October 1, 2008, the Senate debated and voted on an amendment to H.R. 1424, a newly revised version of the Emergency Economic Stabilization Act of 2008. The amended version of H.R. 1424 was sent to the House for consideration, and on October 3, the House voted 263–171 to enact the bill into law. President George W. Bush signed the bill into law within hours of its congressional enactment, creating the $700 billion Troubled Asset Relief Program (TARP) to purchase failing bank assets. The QQQ hit a low in Nov 2008 and is following a 35/88/82 of 88 :: x/2.5x/2.5x monthly fractal cycle. My quess is that in Feb 2026, a similar bank and corporate bailout bill will be bipartisanly passed.
Unusual meaning high inflation and high unemployment:
That is, stagflation.
They should not be cutting rates.
They should be ending the Fed.
Let’s give Trump everything he wants. I’m ready for the consequences, whatever they may be.
Inflation has been above the Fed’s target every month since February 2021! Every month. What an aim they have! Does that seem like a good reason to create more money?
(Lowering the rate the Fed pays on reserves induces banks to lend more and increase M2, as happened with the 1st rate cut. They don’t need to add to their massively expanded Monetary base.)
“The comment on bubbles is telling. The Fed blows them repeatedly then cleans up the mess it makes.”
Having fed the liquor to the drunk, giving the drunk another shot to help with the hangover is hardly “cleaning up the mess.” The damage of booms leading to busts is profound, not anything more money printing cures.
We have to remember the Fed is trying to turn a big ship. Interest rate changes (especially with small incremental changes as they prefer) take 12-18 months to really affect the final economy. Almost no Americans’ lives will be drastically impacted tomorrow morning by this change.
And their projections (although they could end up wrong) a year and a half out show why they are cutting small now. They don’t expect huge increases in unemployment, if they cut a few more times incrementally.
Former Fed Chair Alan Greenspan had no problem telling the financial markets he saw, “irrational exuberance”.
Powell knew if he made a similar comment, then markets would sell off. Instead, he whistled past the graveyard.
Who told Wolf it’s a Bubble #2.
The Fed cut 1/4 to ease gov debt payment. The banks didn’t care. They will charge whatever they want. Mortgage, car loans and c/c rates will stay high. Since 2002/ 03 RE prices are x3 or X4 times higher. Bubble #2 isn’t a bubble. It a trading range. It might last years, or for over a decade. Prices will stay high, well above 2009/ 2012 rock bottom prices, until they become affordable to highly skilled and skilled workers, in real terms. RE are bank’s collateral. They will keep it high.
Boomers Ex Dates increases supply. To protect their assets the banks will constrict new supply. They will keep mortgage rates high. The banks will shift their activities. They will lend to essential industries hubs and satellites.
Translated from fedspeak: “We have no tools to deal with this issue because the person in charge is breaking things on levels we can’t fix.”
Taco should be happy that powell and co. capitulated like he has done so many times on a number of issues. Moreover, his new fed lackey did as he was told.
“The comment on bubbles is telling. The Fed blows them repeatedly then cleans up the mess it makes.” Very true… until they claim they need the wealth effect and pump up asset prices. The median American needs to end the Fed or he will be a slave to inflation for a lifetime…
Since 1913 is longer than a lifetime.
Mish, thanks for the summary!
The Fed has chosen many times to cut rates despite stubborn, rising inflation. Every example I can find is just before a recession.
(1) Fed cut in late 2000/early 2001, with inflation near 3.5%, just before the onset of the Dot-Com recession
(2) Fed cut in summer/fall 2007 with inflation in the 3% range, before the Great Recession. Inflation remained in the 3-5 % range through mid-2008.
Inflation was all high prior to the rate cuts related to the 1970, 1973, 1980, 1982 and 1990 recessions as well.
Of course, one cannot expect either the Fed of the Administration to come out and say “we’re cutting rates because we know darn well there’s an inbound recession, and we want to minimize the damage”.
That would tank the markets and make the recession even worse.
Here’s link to FRED graph which shows effective Fed Funds rate, year-over-year CPI rate, and recessions https://fred.stlouisfed.org/graph/?g=1MokD
Look at the Fed rate cuts, despite high inflation, just before each recession since 1970.
The Fed started cutting a full year ago – with higher than wanted inflation as well. Are you hypothesizing a recession will be retroactively called for that long ago?
Not sure. Inflation was falling a year ago, which isn’t the scenario I’m suggesting. The Fed has previously cut rates when inflation was falling, without there being an ensuing recession.
On the other hand, it wouldn’t take too much to make a recession call from here. Full-time employment peaked in January. U-6 has been rising for over a year. We also have Mish’s analysis of continuing claims + longer-term unemployed, which are trending the wrong way. No one can now argue that there’s a hidden pool of immigrant workers, either. And on top of that, the number of people employed part time for economic reasons is also surging. And then there’s the clear rollover in the housing market.
Deficit spending and GDP appear to have held things together so far, except for people now battling loss of incomes. But I could see the advance Q2 GDP being revised lower, perhaps as a result of the change in the employment numbers. If Q2 GDP gets revised below Q1 then we have already met the traditional shortcut “2 quarters of negative GDP” rule for a recession. (And Mish’s recession warnings from last year would be vindicated too.)
We’ll all see the ‘truth’ in hindsight, but I don’t think a recession will be called near September 2024. A revision to below 0 from 3.3% in Q2 would be massive, especially with the current prediction of 3.3% for Q3 as well.
But if it is, do you think we’ll hear retractions and apologies from all the political complainers that thought the Fed should not have cut rates back then (especially given employment may actually be higher now due to that cut)?
LOL we both know that very few political complainers have the stones to make retractions or apologies, or to recognize errors of any kind!
Despite the fact that we’re all presumably human and therefore error-prone.
BTW, I think you’re right that the recession call won’t go as far back as last September. But I’d also note that rising GDP doesn’t necessarily preclude an NBER recession call. GDP was higher in Q2 of 2008 than Q4 of 2007, but the official recession still started in December.
P.S. I think you’d enjoy taking a look at U-1 and U-6 in FRED. If we assume there’s no recession either underway or already imminent, how do we explain the surge in those unemployed >15 weeks? Similar question for the data on those employed part-time-for-economic reasons?
No, currently rising GDP does not preclude a NBER recession call.
But 4 of the last 6 quarters (including this current 3rd quarter) being above 3% real GDP growth (https://www.bea.gov/data/gdp/gross-domestic-product) probably does preclude a recession already existing. The first quarter was negative statistically due to the huge imports from front-running tariffs.
Yes, I know long-term unemployment is increasing. But that was the long-run plan by the Fed ever since it starting raising rates 3.5 years ago. So far, the Fed’s policies have led the unemployment rate up and inflation down during that time period without causing a recession yet. (The U-6 rate only increased by 1.5% during that same 3-year period)
Doesn’t mean it won’t happen soon, but quite a few people here have been calling for it for a long time.
Asset prices rise before CPI inflation every cycle. The rich get richer and the poor get poorer. The mandate is dual in theory but with tariffs now in play an interest rate reduction may only play through to the asset holders at best.
Inflation is both residual and steady this cycle, tariffs are only going to increase costs immediately when remediating new factories are years out.
Top 10% account for nearly half of all consumer spending:
https://fox2now.com/news/national/top-10-account-for-nearly-half-of-all-consumer-spending-report/
Good ole 1970’s style stagflation about to be served up
Indeed. Jobs down and inflation up is the textbook definition of stagflation Mike missed Jerry’s sleight of mouth.
There was a good article on the FED a few days back:
The cut was BS and unnecessary. The FED cuts rate to stimulate the economy, often correlated with high(er) unemployment under the idea that the lower rates will lead to more job expansion, thus addressing the rising unemployment issue.
But the economy is doing just fine now, if you consider 2nd quarter real GDP was 3.3%, unemployment claims are down, labor productivity is up, consumer spending is up, retail sales are firm and market indexes are strong.
The problem with unemployment, that Powell waffled on in the Q&A session, is that AI is significantly cutting into hiring and employee retention much more sharply than most economists, including Powell want to acknowledge.
Lower interest rates are not going to be a strong factor in creating new jobs any longer. Just wait until AI/robots start taking away blue collar jobs! With driving and delivery jobs evaporating due to autonomous cars, permanent unemployment will soar.
22k jobs (to be revised lower) is not fine…
The economy ebbs and flows. This is why all statistics released by the government should be a 3 month rolling average, to smooth out the bumps.
Perhaps Trump is also correct in changing company financial reporting requirements to 6 months instead of 3 months.
That’s worse than damn lies! Rather, just report year over year raw numbers, without Vaseline, the drug of the feeble.
I dunno if the economy is doing fine. I suspect it’s right on the knifes edge and could go either way real fast.
At hockey last night for the first time in a LONG time (years) guys were talking about people they know who are starting to struggle in this economy. They were saying outwardly they are putting on a face but inwardly they are in trouble. I suspect by the time people are talking about in the hockey dressing room things have been going south for a while and now it’s starting to get noticeable for the most vulnerable people.
The holiday season coming up is going to be VERY telling. My personal feeling after last nights random discussion is that things aren’t going to look so good by New Years and that includes the Market once it realizes what’s going on.
So perhaps there might be a situation developing but your not sure. So why cut interest rates NOW?
Thanks, TT. That’s a very telling anecdote (which is data). Similar to another reader:s story about his daughter quitting her SoCal luxury auto sales job because biz got so bad that no one walked onto the lot one day.
Just one day at a luxury car dealer in SoCal? She ain’t seen nothing yet.
Perhaps, the statement could have explained for the 50% of America that have no assets, just debt, that the rate cut will not provide any relief from the 20 plus per cent interest that they are required to pay on all debts but the banks may cut the 010% they pay checking accounts. Maybe the Fed can explain why lenders/banks paying 0.10% interest on loans to them and charging 25% credit card interest or loan interest will not change with today’s action. Reality is nearby if anyone looks.
Reality is going to be a hard thing when the recession teetering on a possible depression starts getting angry poor people increasingly feisty. It’s been a vapor economy for years, but now it’s not serving anyone. Bad times my friends, bad times.
20% plus. And then there is the gas card at a 33% annual rate with a debt limit of 170 bucks for the monthly commute requiring several cards for reality in the absence of a 60 billion dollar bullet train to nowhere’s bond costs for nothing while sharing the freeways with tax subsidized 100 thousand dollar EVs too prevent Gavin’s climate change while generating more net C02 than an ICE powered vehicle. . . . .
” … for the 50% of America that have no assets, just debt, …” Having no assets is something I have spent many decades avoiding, by often doing without. I drink water. Period. What were they doing for all those decades? Eating ice cream, listening to streaming services, going to Europe, drinking goofy beverages? Vaping? Buying silly clothes? Cry me a river. My total debt this moment, all-in, is $3. Not a typo. But it is a serious choice, hard as that may be to some to comprehend.
Sign on to replace Bob Brinker on weekend radio financial show.
Obviously, you’re clueless about how the bottom 50% live. That’s how the next 40% live. The top 10% are people like us, middle class with assets, who haunt this blog.
Almost certainly, the out year SEP projections were political. Specifically, engineered to get Trump off the Fed’s back for nine months to a year. People should ignore those SEP projections, because they do not reflect the true thinking of FOMC members, other than Miran.