"The Federal Reserve faces a daunting challenge in seeking to guide the U.S. economy clear of stagflation, Chair Jerome Powell said following the central bank's September 2025 policy meeting, warning there is "no risk-free path" ahead for the central bank. The frank admission highlights how policymakers are navigating an environment marked by persistent inflation and slowing economic growth, with significant risks on every side."
"Jerome Powell delivered his remarks as the Federal Open Market Committee announced its first interest rate cut in nine months, lowering the federal funds rate by a quarter-point to a range of 4.0% to 4.25%. The FOMC statement explained that "uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.""
"Powell told reporters that considering the risks to inflation are tilted to the upside and risks to employment to the downside, it's "a challenging situation when our goals are in tension like this," explaining that the Fed's framework calls for a balance of both sides of the dual mandate for full employment and moderate inflation. "So we have a situation where we have two-sided risk," he said, "and that means there's no risk-free path.""
The Federal Reserve faces a difficult trade-off between persistent inflation and slowing growth as it seeks to avoid stagflation. The FOMC cut the federal funds rate by 25 basis points to 4.0–4.25% and noted elevated uncertainty and increased downside risks to employment. Consumer prices rose 0.4% in August, pushing annual inflation to 2.9%, while initial unemployment claims reached a four-year high. Quarterly job growth averaged 35,000, down from 168,000 in 2024, and unemployment rose to 4.3%. Inflation risks are tilted up and employment risks are tilted down, complicating policy choices.
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