Fed Chair Jerome Powell made key remarks this week that are shaping expectations for the Federal Reserve’s upcoming policy moves. Speaking in Philadelphia on October 14, he indicated that the central bank remains ready to ease policy further as hiring data weakens and financial conditions tighten. His comments also strongly suggested that the Fed’s long-running balance sheet reduction program could be nearing its end, signaling a potential shift in the monetary policy landscape.
Powell Highlights Labor Market Weakness
Powell’s latest speech focused heavily on the labor market, which has shown clear signs of softening over recent months. Although the official September jobs report has been delayed due to the ongoing government shutdown, private data and internal Federal Reserve assessments indicate a marked slowdown in hiring. Layoffs have remained relatively low, but companies are holding back on adding new workers, creating what Powell described as a “low-hiring, low-firing environment.”
The labor market’s cooling is central to the Fed’s policy outlook. Powell noted that while inflation remains above target, risks to employment are growing and deserve increased attention. He emphasized that the central bank’s mandate is dual in nature: to maintain price stability and to promote maximum employment. With inflation showing signs of stabilization, Powell indicated that the balance of risks may now be tilting toward protecting jobs.
Rate Cuts Likely on the Horizon
Powell confirmed that the Federal Reserve remains open to additional interest rate cuts in the coming months. After lowering the federal funds rate by 25 basis points in September, Powell signaled that similar moves could occur at the Fed’s October and December policy meetings if incoming data confirm a slowdown.
Financial markets have already priced in two additional 25-basis-point cuts by year’s end. Powell noted that such steps would aim to support the labor market without jeopardizing progress on inflation. He also made clear that any future decisions will depend on data, especially on hiring trends and inflation expectations, rather than following a preset path.
Balance Sheet Reduction May Be Nearing Its End
A major focus of Powell’s remarks was the Fed’s balance sheet policy. Since 2022, the central bank has been shrinking its securities holdings through a process known as quantitative tightening. Its balance sheet has declined from a peak of nearly nine trillion dollars during the pandemic to about 6.6 trillion dollars today.
Powell signaled that this process could soon pause. He highlighted early signs of tightening liquidity conditions in short-term funding markets, including rising repo rates and increased demand for reserves. Ending or slowing the balance sheet runoff would be intended to preserve market functioning and ensure the Fed maintains effective control of short-term interest rates.
Market analysts now expect the Fed to conclude quantitative tightening sometime in early 2026, with bank reserves stabilizing at a level sufficient to support smooth market operations.
Inflation Pressures Are Moderate but Persistent
Inflation remains above the Fed’s 2 percent target, but Powell noted that the recent increase has been concentrated in goods prices affected by tariffs rather than in services or wages. Core inflation has hovered around 2.9 percent year over year, with most longer-term inflation expectations still anchored near the Fed’s goal.
Some policymakers remain cautious about moving too quickly to ease policy, fearing that inflation could rise above 3 percent again by the end of the year. Powell acknowledged these concerns but argued that the Fed has tools to respond if price pressures strengthen unexpectedly. For now, he sees moderate inflation as manageable, especially if labor market risks continue to intensify.
Fed Independence and Political Pressures
Powell’s remarks also come at a time of heightened political attention. Over the past year, there has been public criticism of the Fed’s policy approach, including suggestions from the White House that Powell’s leadership could be challenged. Legal and institutional safeguards make it difficult to remove a sitting Fed chair without cause, and Powell has consistently stated that he will serve his full term.
He also reiterated the importance of the Fed’s independence. Powell argued that monetary policy decisions must be based on economic data, not political pressure, in order to maintain credibility and deliver stable outcomes for the U.S. economy.
Upcoming Key Dates for Monetary Policy
The next several weeks will be crucial for shaping the economic outlook and confirming the Fed’s policy path.
| Date | Event | What to Watch |
|---|---|---|
| October 24 | Release of inflation data | A key indicator ahead of the next rate decision |
| October 28–29 | FOMC policy meeting | Expected 25-basis-point rate cut possible |
| December 10 | Final 2025 FOMC meeting | Potential second rate cut this year |
| Early 2026 | Projected end of QT | Balance sheet runoff may be paused or concluded |
If hiring remains weak and inflation stable, Powell and his colleagues are expected to lean toward additional rate cuts to support economic growth.
Market Reaction and Economic Implications
Financial markets responded positively to Powell’s dovish tone, with bond yields falling and stock indexes rising modestly after his remarks. Investors see the combination of lower rates and a potential end to balance sheet runoff as supportive for financial conditions going into 2026.
Businesses facing higher borrowing costs have also welcomed the prospect of further easing, particularly in sectors like housing and manufacturing, where financing conditions have been tight. Lower rates could help revive investment and hiring, though Powell cautioned that policy cannot solve every structural challenge facing the economy.
The Road Ahead for Fed Chair Jerome Powell
The coming months will test Powell’s leadership as fed chair Jerome Powell navigates a delicate balancing act. He must weigh the need to protect the labor market against the risk of reigniting inflation. At the same time, he faces political scrutiny and market expectations that are increasingly aligned with further easing.
The decisions made between now and the end of 2025 will shape not only the economic outlook for the next year but also Powell’s legacy as chair. His strategy of gradual adjustments, clear communication, and data-dependent decisions remains at the center of the Fed’s approach.
The economic path ahead is uncertain, but Powell’s signals are clear: the Federal Reserve is preparing to act if labor market weakness persists. Share your thoughts below on how these moves might affect the economy in 2026.